It seems to be the latest craze and fortunes can be made or lost with the click of a button. Cryptocurrency is a form of digital currency that can be used to buy goods and services and uses online ledgers to record and verify all transactions, also known as blockchain technology. While cryptocurrency lacks any central government oversight, the Internal Revenue Service (IRS) requires taxpayers to report their cryptocurrency transactions. The experts at Orlando based CPA Accounting & Tax Services outlines 3 things you need to know if you own cryptocurrency like Bitcoin or Ethereum so you can understand how and if it impacts your tax liability if you buy it, sell it or mine it.
1. Cryptocurrency Is Taxed As A Capital Gain If You Make a Profit
The IRS determined that cryptocurrency be treated as a capital asset (i.e. stocks and bonds), which are taxed when they are sold and a profit is made and are hence subject to capital gains taxes. You must report a profit made on cryptocurrency like any other capital gain.
2. You Do Not Have To Report Capital Losses
If you sell or spend your cryptocurrency at a loss, you do not owe taxes on the transaction. Remember, you WILL owe taxes if you spend or sell your cryptocurrency and make a profit.
3. Time And Income Determines How Much Tax You Owe
The length of time you’ve owned your cryptocurrency and your annual income determines how much tax you will owe. Any profits made after owning your cryptocurrency for less than a year would be subject to short-term capital gains, which are taxed at your normal income tax rate. Any profit on cryptocurrency you have held for more than a year would be considered long-term capital gains and taxed at a lower rate that is determined by your annual income. If you mine your cryptocurrency or if you receive it as a payment for goods or services, it counts as regular taxable income.
Let us guide you through cryptocurrency tax reporting. Contact the professionals at CPA Accounting & Tax Services to help guide you through tax season and beyond. We specialize in Business Accounting Services, Individual Tax Services, Tax Preparation, International Tax Services, Tax Planning and Tax Resolution Services. We have offices in Orlando, Florida and service clients worldwide. Find out how we can serve all of your accounting needs by contacting us today.