Taxes on Cryptocurrencies
Like many, you may have taken the plunge — or at least are considering — cryptocurrency trading or mining as an investment opportunity. Certainly, fortunes are being made through the likes of Bitcoin, Etherium, and Litecoin. But there are tax-related issues you need to be aware of when venturing into this new territory. Here are some things to keep in mind:
Cryptocurrency is Not Cash
It’s important to note that cryptocurrency is considered property, as opposed to cash. Therefore any increase in its value will be treated as a capital gain. You can consider any cryptocurrency holdings you have as similar to stock holding. The good news is that, as a capital gain, you won’t be taxed as heavily on your crypto as you would be with what is termed straight “income.” Still, capital gains taxes can be challenging to navigate. There are several strategies you might employ; a good accountant can help figure out the best one for you.
Income Tax on Bitcoin
Receiving payment in cryptocurrency is another matter. In the eyes of the IRS, income means income, no matter what the source. If you are being paid in bitcoin or any altcoin for payment of any type of good or service, it is considered income the same as any other kind. You’ll still need to report it on your taxes.
Calculating Your Taxes
In an economic system that’s getting ever-more complex, now with innovations such as cryptocurrency, it’s becoming more and more necessary to utilize a tax reporting system or software that calculates your capital gains and populates the forms for you. We sometimes see clients with over a hundred pages of 8949 form entries — for capital gains — which would take hundreds of hours to manually input. If you are an investor — cryptocurrency or otherwise — with a diverse portfolio or array of investments, choose a tax calculating system that minimizes your headaches every spring. When it comes to your crypto investments specifically, and the capital gains you may see from them, make sure you get it right at tax time.
Contact us if you have any questions about taxes regarding cryptocurrency, or in general!