Certified Public Accountants
...Freeing clients to pursue their passions since 1981

Old School Rules Control Taxes on New Age Cryptocurrencies 

 

Investing in cryptocurrency moved mainstream in 2017, and now more people are staring down tax bills from their big gains.

The only official IRS guidance about the tax consequences of your adventures in the Jurassic jungle of cryptocurrency trading is from 2014. And that four-year-old publication offers mere guidance, rather than strictly controlling rules.

So the best basic advice when you are confronting taxes on cryptocurrency is: “See your tax professional”. But here’s some basic information to help you sleep at night until you can make that appointment.

How does the IRS define cryptocurrency?

The IRS defines cryptocurrency as a “convertible virtual currency,” which either has an equivalent value in standard currency or can be used as a substitute for standard currency.

Here’s the crucial bit of info. The IRS considers cryptocurrency to be investment property, and not a medium of exchange. In other words, cryptocurrency is deemed an asset, just like real estate, stocks, or precious metals. This means that buying cryptocurrency is not a taxable event. You don’t realize a tax obligation until you trade, use, or sell your cryptocurrency. If you’ve purchased bitcoin and haven’t yet sold it, you probably have not yet incurred any reporting obligations.

If you hold your cryptocurrency longer than a year, the long-term capital gain rules apply

This means you pay about half the short-term tax rate.

A key item of information in calculating taxes on the results of cryptocurrency transactions is the dollar value of your cryptocurrency purchase, at the time of purchase. Most cryptocurrency exchanges do not undertake the task of determining the dollar value of your transaction. Whenever you buy cryptocurrency, it’s a very good idea to ascertain and record the then current USD value of your purchase.

The above barely skims the surface of a multitude of gray areas, so, to avoid being bitten by bitcoin, see your tax professional.

Read the full article at: money.cnn.com

 

At Sobul, Primes & Schenkel, we pride ourselves on delivering the very highest standards, competency and professionalism to our clients. Our firm offers a greater level of personal service than any other Los Angeles or national firm.  SPS has been freeing our clients to pursue their passions since 1981.

For more information about SPSCPA, simply click here to schedule a consultation or call us at 310-826-2060.

Leave a Reply

Your email address will not be published. Required fields are marked *

*