All You Need To Know About Taxation Of Cryptocurrency

Just like other businesses, cryptocurrency traders and investors need to know what the rules are for keeping their trading records in order. Receiving crypto in exchange for goods and services, trading on exchanges, and trading a personal inventory of crypto all trigger tax consequences.

What counts as a taxable event?

1. Receiving Money

A taxable event occurs when a taxpayer receives money, goods, or services in exchange for a currency, or other property that can be converted into or is representative of money (e.g. stocks, bonds, etc.).

2. Transactions

A taxable event also occurs any time a person trades cryptocurrency for another type of cryptocurrency or fiat currency (USD, EUR, JPY, etc.). When trading one cryptocurrency for another type of cryptocurrency is considered two separate transactions: selling one asset and buying another. A non-taxable event is when a person trades cryptocurrency for another type of property.

3. Mining cryptocurrency

Mining, or generating crypto is a taxable event and is treated as a business. Mining Bitcoin and other cryptocurrencies as an employee or independent contractor is taxable income that must be reported to the IRS.

5. Exchanging one cryptocurrency for another cryptocurrency:

Trading one cryptocurrency for another cryptocurrency (ex. trading one token to buy another token) is taxable because it creates a new currency or another type of property.

Where are the records kept?

A taxpayer’s bank and brokerage accounts may help track their transactions, but it is good practice to keep official records of your trades and deposit transactions on paper. Online, the IRS has access to all transactions through a Coinbase online account or other virtual wallets that support cryptocurrencies.

Remember, if a transaction was performed in a virtual space, the IRS may only look at the records of the person or organization from which goods or services were received.

What are some of the tax consequences?

Trade-in cryptocurrency is considered taxable if the exchange is for money, property, or services. If you buy Bitcoin for USD and then use it to donate to charity, you have received income from that Bitcoin transfer. Cryptocurrency trades, whether the trade of one cryptocurrency for another or from one cryptocurrency to another, are taxable.

Just like other businesses, cryptocurrency traders and investors need to know what the rules are for keeping their trading records in order. Receiving crypto in exchange for goods and services, trading on exchanges, and trading a personal inventory of crypto all trigger tax consequences. What…