Where to Report Crypto on Taxes

Wondering where to report your cryptocurrency on taxes? Look no further! This blog post covers everything you need to know about crypto and taxes.

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Introduction

It’s no secret that the IRS has been struggling to regulate cryptocurrency since its inception. In fact, they’ve only just begun to catch up in the past few years. As crypto becomes more mainstream, it’s likely that the IRS will continue to tighten its regulations. For now, though, there are still some areas of ambiguity when it comes to taxes and crypto. So, what do you need to know if you want to stay on the right side of the law?

In this article, we’ll outline what you need to do in order to properly report your cryptocurrency gains or losses on your taxes. We’ll also touch on some of the different tax implications that come with different types of crypto transactions. By the end, you should have a good understanding of how to approach your crypto taxes.

What is cryptocurrency?

Cryptocurrency is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions, to control the creation of additional units, and to verify the transfer of assets. Cryptocurrencies are categorized as a subset of alternative currencies, or specifically as a digital asset. Bitcoin, created in 2009, was the first decentralized cryptocurrency. Since then, numerous other cryptocurrencies have been created. These are frequently called altcoins, as they differ from bitcoin. For example, Ethereum is an altcoin that has many features that Bitcoin does not have.

Bitcoin and other cryptocurrencies have been identified as economic bubbles by at least eight Nobel Memorial Prize in Economic Sciences laureates, including Robert Shiller,[193] Joseph Stiglitz,[194] and Richard Thaler.[195][14] Noted Keyensian economist Paul Krugman wrote in his New York Times column criticizing bitcoin, calling it a bubble and a fraud;[196] and professor Nouriel Roubini of New York University called bitcoin the “mother of all bubbles.”[197] Central bankers, including former Federal Reserve Chairman Alan Greenspan,[198] investors such as Warren Buffett,[199][200] and George Soros[201] have stated similar views, as have business executives such as Jamie Dimon and Jack Ma.[202][203][204][205]

What is considered a taxable event?

A taxable event is a event that triggers a tax liability. For cryptocurrency, this generally occurs when you sell, trade, or otherwise dispose of your crypto. When you dispose of cryptocurrency, you need to calculate your gain or loss from the transaction. The gain or loss is the difference between the amount you paid for the crypto (your cost basis) and the amount you sold it for. If you disposed of cryptocurrency for more than your cost basis, you have a realized gain and need to pay taxes on that gain. If you disposed of cryptocurrency for less than your cost basis, you have a realized loss and may be able to deduct it from other capital gains.

How to report cryptocurrency on taxes

Precisely how you report cryptocurrency on taxes depends on how you acquired it and what you did with it afterward.

If you bought cryptocurrency as an investment, you’ll need to report any gains or losses when you file your taxes. This is true even if you didn’t cash out your crypto for fiat currency (like U.S. dollars). You’ll need to use the fair market value of the crypto at the time of the transaction when calculating your gain or loss.

Similarly, if you sold goods or services and accepted crypto as payment, you’ll need to calculate the fair market value of the crypto at the time of the transaction and report it as income. Depending on the size of your transaction, this could be considered a self-employment activity, in which case you’d also need to pay self-employment taxes.

If you traded one type of cryptocurrency for another, then you’ll need to report any gains or losses from that trade when filing your taxes. For example, say you bought Bitcoin (BTC) when it was worth $10,000 and then traded it for Ethereum (ETH) when BTC was worth $11,000. To calculate your gain or loss, you would take the difference between what you paid for ETH ($11,000) and what BTC was worth when you purchased ETH ($10,000), resulting in a $1,000 gain. You would then report that figure on your tax return.

Finally, if you gave away crypto or used it to pay for goods or services, you’ll need to determine the fair market value at the time of the transaction and report it as a gift or income, respectively.

Conclusion

In conclusion, if you have traded or sold cryptocurrency, you will need to report this on your taxes. The process is relatively simple, but it is important to make sure that you are accurate in your reporting in order to avoid any penalties.

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