Taxation of Cryptocurrencies

IRS is bringing the cryptocurrency tax issues front and center to give it visibility. Your individual tax form has a quetion on the first page asking if you transacted in cryptocurrencies. Here are some issues to be aware of:

1)??Cryptocurrencies are considered property, not currency or security. As such, they are subject to property taxation rules.

2)??Mining, staking or earning interest produces ordinary taxable income reportable on schedule C and subject to self-employment taxes. Good news is that associated expenses are tax deductible.

3)??Capital gains are generated when cryptocurrencies are sold or used to purchase goods or services.

4)??Hard Fork generally results in ordinary income. The tax guidance is still developing in this area.

5)??Spending cryptocurrency is a simultaneous sale of the crypto and purchase of goods or service and capital gains result.

6)??Getting compensation for work performed via cryptocurrency is ordinary income subject to self-employment tax. This is no different than getting compensated by cash, stocks or other property.

7)??Wash sales rules do not apply because cryptocurrencies are currently not considered securities. This is beneficial to taxpayers.

8)??Cryptocurrency record keeping remains a nightmare. The good news is that it is expected that the IRS will be lenient since the tax guidance is inadequate.

9)??Property settlement entities (e.g. eBay) are required to report payments made to merchants via VC on form 1099K if the number of transactions exceeds 200 and gross amount exceeds $20,000.

10)??????????????The USD conversion from VC can be calculated by using a large VC exchange’s conversion rate or an average of 3 large exchanges, as long as the same method is used consistently.

The area of crypto and virtual currency is in state of flex and developing. Meanwhile the use of cryptocurrencies as a medium of exchange and store of value is increasing exponentially.

Contact our firm with any cryptocurrency tax questions.?