A Quick Guide on Cryptocurrency Taxes for People in a Rush
The following is a guest post by Mario Costanz, CEO of HappyTax and CryptoTaxPrep.com.
In our increasingly digital world, everything happens fast. Bitcoin was a groundbreaking financial technology because it sped up electronic transaction verifications from days to hours. Bitcoin Cash offered an update to the original version to shave this time down to about ten minutes, and new coins like Ripple boast instantaneous transaction verification.
Cryptocurrency investors can be a particularly impatient bunch. After all, they have to act quickly to participate in virtual currency markets, which are constantly in flux. So, who among them has the time to read an entire treatise (or even a long article) on cryptocurrency tax policy? Nobody, that’s who.
However, the IRS takes cryptocurrency taxes very seriously, and the investment community should too. This quick guide skims the surface of what every virtual currency investor should know this tax season.
You must pay taxes on your cryptocurrency gains (no exceptions).
The IRS laid down the law back in 2014: cryptocurrency investments are taxable as property. There are a lot of myths out there about tax loopholes that can allow you to escape taxation on your virtual currency investments. However, don’t give in to wishful thinking. You must pay taxes on any gains or losses on your cryptocurrency investments, and not doing so can land you in serious trouble with the IRS.
You must report cryptocurrency gains and losses on your federal income tax returns.
Just like any other income or deductions subject to federal tax law, you must report your cryptocurrency gains and losses to the IRS. The IRS does not require third-party exchanges, like Coinbase, to provide you with 1099 statements or similar taxation at the end of the year. So, it’s up to you and your accountant to figure out what documents you need to prepare with your annual return. Your regular accountant may not be up to date on the records you’ll need to properly report your cryptocurrency income, so contact a skilled cryptocurrency tax expert to make sure your returns are in line.
Purchasing goods or services using cryptocurrencies also triggers tax liability.
When it comes to cryptocurrencies, any exchange is a taxable event. This includes the purchase of goods and services. As more and more retailers accept Bitcoin and other cryptocurrencies, this may change. However, for the time being, nearly every transaction made using virtual currency is subject to capital gains tax.
Specially-trained cryptocurrency accountants can help you prepare your returns.
For people who invest in traditional markets, tax season can be relatively simple. Unfortunately, however, the same is not true for virtual currency investors. If you’ve bought or sold virtual currencies this year, you should consult with a trained professional for your tax planning and advice.
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