Have you owned cryptocurrency? Did you know crypto transactions may impact your tax bill?
If you or your dependent children have had online activity involving Robinhood, Ethereum, Bitcoin, or other crypto transactions, you may have income to include on your tax filings.
- Every time a trader sells a stock or a cryptocurrency, it counts as a taxable moment.
- If you purchase goods or services with cryptocurrency, your purchase counts as a sale of that crypto.
- If you earn cryptocurrency by mining it, or receive it as a promotion or as payment for goods or services, it counts as part of your regular taxable income.
The Internal Revenue Service (IRS) treats all cryptocurrency as capital assets, and you owe taxes when they’re sold at a profit. This is exactly what happens when you sell more traditional investments, like stocks or funds, at a gain.
New traders may struggle with reporting their transactions, especially when dealing with foreign-operated and more obscure exchanges. Some exchanges allow transactions to be downloaded, while others let customers use third-party software that can download their trades to make filing easier.
How much you own in capital gains taxes depends on whether you’ve held your crypto for less than a year or more than one year. If you haven’t quite reached 12 months, your profits are taxed at short-term capital gains rates, a.k.a. your regular income tax rate. But if it’s been at least one year since you purchased your coins, you’ll qualify for a long-term capital gains rate that’s lower than most income taxes, depending on your taxable income.
BE AWARE OF SEVERAL UNIQUE ISSUES WITH DAY TRADING STOCKS AND BUYING OR SELLING CRYPTOCURRENCY
It’s never too early to get organized with your crypto taxes. The standard Form 1040 tax return now asks whether you engaged in any virtual currency transactions during the year. For anyone who has participated in online trading or the purchase or sale of cryptocurrency, here are some key ideas:
Keep Records of All Transactions – You must keep track of all your cryptocurrency transactions, as well as receipts for each transaction.
Fill Out the Proper Tax Forms – Once you have a record of your crypto transactions, our tax professionals can help you access the correct document.
File Your Taxes – Whether you file on your own or hire a tax professional, it is important to claim the appropriate amount of income, so you do not receive fines in the future. Laws surrounding crypto transactions are constantly evolving, so choose the path that will ensure the highest accuracy.
If you think you might owe cryptocurrency taxes in the future, talk with a tax professional at Anfinson Thompson & Co.