Cryptocurrency trading is becoming a very hot topic these days. Here's what you need to know about cryptocurrency and taxes.
Cryptocurrency is considered property by the IRS and can be classified as business property, investment property, or personal property which will determine taxability.
Since it is property - it is important to remember that every time you exchange one type of cryptocurrency for another one, that is considered a sale. You need to determine the cost basis and proceeds for the sale of each cryptocurrency.
Sales of cryptocurrency qualify as capital assets. They are subject to the capital gain/loss rules. They are netted with other capital gains/losses (i.e. from stock sales) and long-term capital gains are eligible for the preferential tax rate of 15% or 20% for high net worth taxpayers.
You must keep detailed records every time you buy and sell cryptocurrency.
Why is this important right now?
Just recently, the IRS won their case against Coinbase who had to turn over the records for over 14,000 investors who purchased and sold via the Coinbase platform from 2013-2015. (https://townhall.com/columnists/lindsaymarie/2017/12/29/brace-yourselves-cryptocurrency-investors-taxes-are-coming-n2428153)
India's income tax department has just sent out tens of thousands of notices to taxpayers dealing in cryptocurrency (https://www.engadget.com/2018/01/22/india-cryptocurrency-taxes/)
Also just announced a few hours ago - South Korea released new rules requiring cryptocurrency exchanges to share data of their user's transactions (https://www.msn.com/en-us/finance/markets/south-korea-announces-cryptocurrency-account-regulations/ar-AAv3mIJ)
Bottom line is that as cryptocurrency trading becomes more popular, the more regulations will be created to fight non-reporting. And as these recent changes have shown, cryptocurrency trading is not as anonymous as people may think. The government institutions are fighting to regulate it and obtain the records of those who are trading and not reporting,
Cryptocurrency is a very complex topic. Please come see us if you have any questions. We can help you navigate the rough waters of cryptocurrency as it relates to your taxes.
https://www.forbes.com/sites/greatspeculations/2018/01/03/what-you-should-know-about-taxation-of-cryptocurrencies/#5fc447be1346