Do you have to report cryptocurrency if you don’t sell? The answer may surprise you. Learn about the different types of cryptocurrency and how they are taxed.
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In short, if you don’t sell, trade, or otherwise cash out your cryptocurrency, you probably don’t have to report it on your taxes. The IRS only cares about cryptocurrency taxable events, meaning when you sold, traded, or cashed out your crypto. So if you bought some bitcoin and are holding onto it as an investment (i.e., not selling or trading it), then you don’t have to worry about paying taxes on it. Yet.
What is the IRS’s stance on cryptocurrency?
The IRS has been clear that cryptocurrency is property and not currency. That said, the agency has yet to provide comprehensive guidance on how exactly it should be taxed. In general, though, the IRS treats cryptocurrency like any other capital asset, subject to short- and long-term capital gains taxes.
If you hold cryptocurrency as a capital asset, you will have to pay capital gains taxes on any profits you realize when you sell or trade it. However, if you don’t sell or trade your cryptocurrency, you don’t have to pay any capital gains taxes.
Of course, even if you don’t sell or trade your cryptocurrency, you may still have to report it to the IRS. For example, if you receive cryptocurrency as income (e.g., in exchange for goods or services), you will need to report it as income on your tax return. Similarly, if you receive cryptocurrency as a gift or inheritance, you may need to pay taxes on it.
Bottom line: If you own cryptocurrency, be sure to consult with a tax professional to ensure that you are compliant with all applicable tax laws
What are the tax implications of buying and selling cryptocurrency?
The short answer is that you may not have to pay taxes on your cryptocurrency at all, depending on how long you held it and what you used it for. If you bought cryptocurrency as an investment and then sold it later for a profit, you’ll likely have to pay capital gains tax. If you used cryptocurrency to buy goods or services, you may have to pay taxes on the fair market value of those goods or services.
Jurisdictions all over the world are still figuring out how to tax cryptocurrency, so the rules are subject to change. For now, though, the general principle is that you should only have to pay taxes on cryptocurrency if you’ve realized a capital gain by selling it for more than you paid.
What if you don’t sell your cryptocurrency?
Generally, if you don’t sell your cryptocurrency, you don’t have to pay taxes on it.
This is because the IRS considers cryptocurrency to be property, not currency. That means if you don’t sell your crypto, you don’t have to pay taxes on it. You will only owe taxes when you sell your crypto for USD or another currency.
However, there are a few exceptions. If you use crypto to pay for goods or services, you will owe taxes on those transactions. And if you mine crypto, you will owe taxes on the income you receive from mining.
Otherwise, you don’t have to report your crypto holdings to the IRS unless you sell them.
What if you’ve lost money on your cryptocurrency investment?
If you’ve lost money on your cryptocurrency investment, you may be able to deduct it on your taxes. The IRS says that “if you held the virtual currency for less than one year before selling or exchanging it, your gain or loss from the sale or exchange is short-term capital gain or loss.” Short-term gains are taxed as ordinary income at rates up to 37 percent.
However, if you held the virtual currency for more than one year before selling or exchanging it, your gain or loss from the sale or exchange is long-term capital gain or loss.” Long-term capital gains are taxed at a lower rate — up to 20 percent. So, if you’re in a high tax bracket, it may be beneficial to hold onto your crypto investments for more than a year before selling.
Of course, you can only deduct losses if you itemize deductions on your taxes. And, there’s a limit to how much you can deduct — you can only deduct up to $3,000 in capital losses per year. So, if you have a large loss, it may take a few years to deduct it all.
In short, if you don’t sell, trade, or otherwise cash out your crypto, you don’t have to report it on your taxes. You also don’t have to pay taxes on the new crypto you receive as a result of a hard fork or airdrop.