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TAX REPRESENTATION FROM A FORMER IRS EMPLOYEE

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Is cryptocurrency taxable?

On Behalf of | Mar 15, 2022 | Tax Law

If you have not paid tax on cryptocurrency profits so far, you need to start. While it has been a bit of a gray area, the IRS is determined not to miss out just because you do not keep your money in worldly assets.

This year’s tax returns have a section dedicated to cryptocurrency. It asks if you received, sold, exchanged or disposed of any virtual currency. If you have, you had better answer truthfully, as failing to do so could land you in trouble with the IRS.

What if you are unsure how to declare cryptocurrency?

Virtual currency is relatively recent, so the rules are still developing. Hence it is no surprise that many people who own it are unsure of the taxes that apply. 

Cryptocurrency is property in the eyes of the IRS, not currency. If you trade it and profit, you may need to pay capital gains on those profits. The same applies when you spend gains accumulated because the cryptocurrency you hold has gone up in value. If you bought $1,000 worth of coin, which is now valued at $10,000, you need to report anything you spend of the $9,000 gain.

There are also proposals that you need to declare anything over $10,000 worth of cryptocurrency held offshore, but that remains to be seen.

The rules are likely to get more complex as the IRS seeks to rein in what some thought was a way to make money for free. Getting legal help to declare your cryptocurrency correctly in this tax return, will set you on a good path for the future.

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