People might refer to cryptocurrency as a virtual currency, but it's not a true currency in the eyes of the IRS. According to IRS Notice 2014-21, the IRS considers cryptocurrency to be property, and capital gains and losses need to be reported on Form 8949 and Schedule D.
Like other capital gains and losses, your gain may be short-term or long-term, depending on how long you held the cryptocurrency before selling or exchanging it.
If you owned the cryptocurrency for one year or less before spending or selling it, any profits are short-term capital gains, which are taxed at your ordinary income rate.
If you held the cryptocurrency for more than one year, any profits are long-term capital gains, subject to long-term capital gains tax rates.
How you report cryptocurrency on your tax return depends on how you got it and how you used it.
You can usually download a transaction report from your cryptocurrency exchange platform, including all of your buys, sells, and exchanges of cryptocurrency in your account. If all of your cryptocurrency transactions occur on one exchange, gathering the information you need to report transactions on your tax return should be relatively easy. If you have cryptocurrency transactions on several exchanges, you'll need to download several reports.
CONTACT US TODAY if you have any questions or need help with the preparation of tax returns.
Sincerely,
Maryna Varabyova, CPA
(877) 677-3737
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