As the tax period approaches, investors engaged in the market or cryptocurrency trading may have more IRS forms to fill out than usual this year.
Many, but not all, transactions in bitcoin, ethereum and other digital currencies must be reported to the federal government. This leaves some encryption users confused about how to prepare their taxes.
Here’s what you need to know about how to tax cryptocurrency activity and how to report it, according to Shehan Chandrasekera, CPA and head of tax strategy for CoinTracker, a cryptocurrency portfolio detector and tax computer.
“First of all, if you used regular US dollars to buy cryptocurrency assets or a cryptocurrency wallet, rest assured you have no tax liability and no reporting,” Chandrasekera told CBS News Streaming.
However, the Internal Revenue Service requires U.S. residents to report the following encryption events, which are considered taxable:
- Hold assets in cryptocurrencies and use cryptocurrencies to buy a good or service
- Have you sold or redeemed your cryptocurrencies for government-issued currency?
- You exchanged one cryptocurrency with another
- Your employer paid you in cryptocurrencies
- You were given free chips through airdrop
“If you had any of these five statements, you would have to file a deposit,” Chandrasekera said.
Millions more Americans this year should report this type of activity to the IRS. In all, 46 million people in the United States now own bitcoin – and that number is growing daily, according to Chandrasekera.
Of course, just because you have to report an incident to the IRS does not mean that you owe much in tax money. Only transactions that lead to profits, against losses, can be taxed.
More and more Americans are entering the world of cryptocurrencies every day as new exchanges enter the market. Encryption trading platforms made big games for new users in this year’s Super Bowl, spending millions on 30-second ads by companies like FTX Trading and Crypto.com hope will bring new customers.
FTX.com has even given bitcoin to some viewers – gifts that the prize winners will have to mention in their tax forms this year.
Add Comment