The subject of cryptocurrency taxes has been hotly debated leading up to this year’s tax deadline. Cryptocurrency was created to be a new, ultra-secure form of currency. However, the IRS does not recognize cryptocurrency as currency— instead, they’ve classified it as a property (to the great ire of many cryptocurrency enthusiasts).
Because cryptocurrency is classified as a property by the IRS, it’s taxed just like any other property. And when any property is sold, any gains on the property are taxable.
The issue of capital gains taxes is what has so many cryptocurrency users upset with the IRS. It counts as a sale when cryptocurrency is exchanged for dollars (or any other officially recognized currency), when cryptocurrency is traded for different cryptocurrency, and when cryptocurrency is used to make a purchase. So, anyone who trades a lot of cryptocurrency or makes a lot of purchases with cryptocurrency is going to have a complicated tax return. The gain for each and every cryptocurrency sale (even from small transactions, like buying a coffee with cryptocurrency) must be recorded, reported, and taxed.
In essence, cryptocurrency is currently being taxed the same way stocks are taxed. It makes sense that the IRS would choose to tax cryptocurrency this way, as cryptocurrency is often traded the way stocks are. And while cryptocurrency was designed to be a currency, it isn’t used in the same way traditionally defined currencies are.
Perhaps because cryptocurrency is so new, the IRS also hasn’t released much official guidance on how to properly record and declare cryptocurrency transactions. This is another thing that has caused some frustrated cryptocurrency users to be upset with the IRS.
Because cryptocurrency taxes can be incredibly complicated, we highly recommend that those who have heavily bought or sold cryptocurrency seek the help of a tax professional this tax season. The tax experts at Vanguard Tax Relief are fully versed in every tax law surrounding cryptocurrency, including the different applicable tax rates and how mining is taxed. Don’t make the mistake of failing to report cryptocurrency sales, or reporting them incorrectly. Contact our office today to have your taxes filed by an expert so you can stay out of trouble with the IRS.
If you’ve already missed the tax deadline, our tax experts can help you file as quickly as possible.