Bitcoin and other cryptocurrency have been the subject of IRS investigation for the past few years. They have recently established guidelines for reporting your virtual transactions.
Many people believe there are no reporting requirements as crypto is just virtual money. However, your virtual money increases and decreases in value relative to the US dollar so the IRS wants you pay tax on your profits.
Here are a few types of transactions which need to be reported on your taxes.
Buying anything with your cryptocurrency creates a tax reporting requirement. The IRS believes you are actually converting your currency to US dollars and then buying your item.
You will need to show what you originally paid for the currency and what the trading price was on the day that you made your purchase. You may even have cryptocurrency reporting requirements if you sell someone something and let them pay in cryptocurrency.
If you do any kind of work and receive cryptocurrency as compensation, you will need to file a business tax return and pay your Medicare and Social Security tax on your net profit.
This includes any Bitcoin Mining.
If you sell your cryptocurrency or trade to another type of crypto, you need to report the transaction on your taxes. Forks and Airdrops have a special line on your tax return to report the fair market value on the date received.
How do you figure out what you paid for the currency in the first place so you can determine your gain of loss?
The IRS has very specific rules. In most cases you will need to use an online conversion platform to help with your tax reporting. This is a complicated tax specialty. Let ABC Tax Service help you. Call or use our online contact form.