Depending on what country you live in, your
cryptocurrencywill be subject to different tax rules. The questions below address implications within the United States, but similar issues arise around the world. As always, check with a local tax professional to assess your own particular tax situation.
For the first time since 2014, the IRS has issued new
Are Cryptocurrency Trades Taxable?
In this sense,
For example, if you purchased 0.2 Bitcoin for $2,000 in April of 2018 and then sold it two months later for $4,000, you have a $2,000 capital gain. You report this gain on your tax return, and depending on what tax bracket you fall under, you will pay a certain percentage of tax on the gain. Rates fluctuate based on your tax bracket as well as depending on whether it was a short term vs.
When Do I Owe Taxes on My Cryptocurrency?
The following examples have been taken from the official IRS guidance as to what is considered a “taxable event” for
cryptocurrencyto fiat currency like the U.S. dollaris a taxable event.
cryptocurrencyto cryptocurrencyis a taxable event (you have to calculate the fair market value in USD at the time of the trade).
cryptocurrencyfor goods and services is a taxable event
cryptocurrencyas a gift is not a taxable event (the recipient inherits the cost basis; the gift tax still applies if you exceed the gift tax exemption amount).
- A wallet-to-wallet transfer is not a taxable event
cryptocurrencywith USDis not a taxable event
How Do I Calculate My Gains and Losses From My Crypto Trades?
To calculate your capital gains and losses on your crypto trades, apply this formula:
Fair Market Value – Cost Basis = Capital Gain / Loss
Fair market value is simply how much an asset would sell for on the open market. Again, with
Cost basis is the original value of an asset for tax purposes. In the world of crypto, your cost basis is essentially how much it cost you to acquire the coin.
Let’s say you bought 5 ETH in January of 2018. You paid $2,000 for these ETH ($400 for each coin). After the market took a turn for the worse, you sold 3 of these ETH in July for $150 each.
In this example, your cost basis for the 3 ETH that you sold is $1,200 (3 * $400). You sold the coins for $450 total. This is your fair market value.
Doing the math: $450 – $1,200 = -$750.
You incurred a $750 capital loss. You would file this loss on your taxes, and it would reduce your tax bill. You would not owe taxes on the 2 ETH that you are still holding because you haven’t disposed of them yet.
Keep in mind, coin-to-coin trades are considered both a “buy” and a “sell” for tax purposes. You can also use a
Can I Save Money on My Taxes if I Lost Money Trading?
Yes. If you realized losses throughout the year from trading crypto, these losses can and should be used to offset other capital gains as well as up to $3,000 in ordinary income. Keep in mind, you need to “realize” these gains to be able to write them off on your taxes..
I received a 1099-K from Coinbase, Gemini or another exchange. What do I do?
A 1099-K is a form that reports credit card transactions and third-party network payments that you have received during the year. It is not an “entry” document, meaning you don’t need to attach or “include” it with your tax return.
1099-Ks from exchanges like Coinbase report the total dollar amount of transactions that occurred from your account. This number can be very large and not at all representative of how much money you put into
In order to properly report your crypto taxes, you need to capture your holistic crypto activity across all exchanges and platforms and complete a 8949 Form.
Will I Be Audited if I Don’t Report my Cryptocurrency Gains and Losses?
No one can answer this question for certain. Audits do not happen very often for average citizens; however, as noted above, the IRS has explicitly stated that the taxation of virtual currencies is one of its core campaigns and focuses for the year. Staying on the right side of the law and avoiding tax fraud is a safe way to go.
I Didn’t Report My Cryptocurrency Transactions During Previous Years. What Should I Do?
If you did not report your
My Employer Pays My Wages in Virtual Currency. Do I Need to Report This On My Taxes?
Yes. Wages paid via
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