Contents
Worried about how to claim your cryptocurrency gains on your taxes? Look no further! This blog post will guide you through the process step by step.
Checkout this video:
Introduction
The IRS considers cryptocurrency to be property, which means it is subject to capital gains taxes. If you sold, traded, or exchanged your cryptocurrency this year, you will need to report any gains or losses on your taxes. This guide will show you how to calculate and report your crypto gains so you can stay compliant with the IRS.
What is a cryptocurrency?
Cryptocurrency is digital or virtual money that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its biggest allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
Cryptocurrency is also known as a digital asset that can be used as a medium of exchange. Cryptocurrencies use decentralized control as opposed to centralized digital currency and central banking systems. Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Since then, numerous other cryptocurrencies have been created. These are frequently called altcoins, as a blend of alternative coin.
Coinmarketcap.com lists over 1,500 cryptocurrencies with a total market capitalization of over $278 billion as of September 2018.
What are the tax implications of cryptocurrency?
The tax implications of cryptocurrency can be complicated, and there is still some uncertainty in the space. In general, though, you will likely be liable for capital gains taxes if you profit from selling cryptocurrencies. This means that you will need to keep track of your buying and selling price for each coin, as well as the total amount of crypto that you own.
If you trade crypto frequently, it may be wise to set up a system for tracking your transactions so that you can easily calculate your gains and losses. There are also a number of online services that can help with this.
In some cases, you may also be liable for other taxes, such as income tax or GST/HST. For instance, if you are paid in cryptocurrency for goods or services that you provide, the value of the coins will be considered taxable income. Similarly, if you use crypto to purchase goods or services, you may be required to pay GST/HST on the transaction.
Cryptocurrency is still a relatively new phenomenon, and the tax rules surrounding it are likely to evolve over time. As such, it is always a good idea to consult with a tax professional if you have any questions about how your specific situation might be affected.
How to report cryptocurrency on taxes?
The IRS considers cryptocurrency to be property, so it is subject to capital gains taxes. Just like stocks or real estate, when you sell your cryptocurrency for more than you paid for it, you have to pay taxes on the difference. The IRS has been clear that they consider cryptocurrency to be taxable, but they have yet to issue specific guidance on how to report it on your taxes.
Fortunately, there are a few resources that can help you figure out how to report your cryptocurrency on your taxes. The most important thing is to keep good records of all of your crypto transactions. That way, when the IRS does issue specific guidance, you will be able to easily comply.
In the meantime, here are a few tips on how to report your crypto gains on taxes:
-Keep track of the cost basis for each of your crypto holdings. This is the price you paid for the coins, and it will be used to calculate your capital gains.
-Remember to take into account any fees or commissions you paid when buying or selling crypto. These will affect your cost basis and should be included in your records.
-If you receive crypto as income (for example, if you are paid in Bitcoin for goods or services), then you will need to pay ordinary income taxes on the value of the coins at the time they were received.
-If you lose money on a crypto transaction (for example, if you sell coins for less than you paid for them), then you may be able to deduct the loss from other capital gains or from ordinary income.
The best way to stay compliant with tax regulations is to keep good records and consult with a tax professional if necessary. With careful planning, you can minimize your tax liability and make sure you are prepared when the IRS issues specific guidance on reporting cryptocurrency gains.
What if I don’t report my cryptocurrency on taxes?
The IRS has made it clear that they expect taxpayers to report their cryptocurrency gains on their taxes. But what happens if you don’t?
First, it’s important to understand that the IRS treats cryptocurrency as property, not currency. That means that every time you buy or sell cryptocurrency, you are potentially incurring a capital gain or loss. These gains and losses need to be reported on your taxes.
If you don’t report your cryptocurrency gains, the IRS may eventually catch up with you. They could do this through an audit, or if you try to hide your crypto assets by not reporting them on your taxes. If the IRS catches you failing to report your gains, they could impose heavy penalties, including fines and interest charges. In severe cases, you could even be subject to jail time.
So it’s important to make sure that you report all of your cryptocurrency gains on your taxes. This way you can avoid any potential penalties from the IRS.
Conclusion
The bottom line is that if you made any money at all from trading cryptocurrencies in 2017, you need to report it to the IRS. Whether you made $100 or $100,000, you are required to pay taxes on your gains.
While it may seem daunting at first, reporting your crypto gains is actually not that difficult. All you need to do is calculate your gains, report them on your taxes, and pay any taxes owed.
If you are unsure of how to calculate your gains or where to report them on your taxes, there are many resources available online. You can also consult a tax professional for help.
