The IRS issued another notice last Friday to remind taxpayers that they need to report any gains from the sale of cryptocurrency on their tax returns.
While many people think of Bitcoin, Ethereum and the like as currencies, the IRS currently classifies them as property. This means that buying and selling virtual currencies has many of the same ramifications of buying and selling stocks. What’s more, “selling” may include more transactions than you think, including using cryptocurrency to purchase a product or a service.
Of course, receiving Bitcoin as payment (we’re looking at you, podcast and digital clients!) still counts as income and must be reported just the same as if it were received in Dollars.
Last month the IRS reached an agreement with Coinbase, one of the largest cryptocurrency platforms, to disclose information on 13,000 of its users. In Friday’s notice, the IRS warned that taxpayers who fail to properly report virtual currency transactions will thus face the greater possibility of audits and related consequences for under-reporting taxable income.
Please make sure you notify your tax preparer if you believe you have any reportable income from cryptocurrencies or if you have any questions about transactions you may have made that involve these instruments. Note that you may still have a tax liability, even if you did not receive a 1099 or other tax form.
Timely disclosure may avail you the ability to utilize offsetting losses from elsewhere on your tax return and will make your tax planning more significant.
As always, we are here to answer any questions or to help direct you on how to find the relevant information.
This material was created for educational purposes only and is not intended as investment advice nor as an endorsement of cryptocurrencies as an investment vehicle. Please reach out to us for advice specific to your needs.