As the tax season approaches, investors who have ventured into buying or trading cryptocurrency you may have more IRS forms to fill out than usual this year.
Many, but not all, transactions in bitcoins, ethereum, and other digital currencies must be reported to the federal government. This is confusing some early cryptographers on how to prepare their taxes.
According to Shehan Chandrasekera, CPA and head of tax strategy at CoinTracker, a cryptocurrency wallet tracker and tax calculator, this is what you need to know about how to record cryptocurrency activity and how to report it.
First of all, if you have used regular US dollars to buy cryptocurrency assets that have been left in a cryptocurrency or exchange portfolio, rest assured that you have no tax liability and no need to report it, he said. Chandrasekera and CBS News Streaming.
But the Internal Revenue Service requires U.S. residents to report the following cryptographic events, which are considered taxable:
- You have cryptocurrency assets and use cryptocurrency to buy a good or service
- You have sold or collected your cryptocurrency assets in a currency issued by the government
- You exchanged one cryptocurrency for another
- Your employer paid you in cryptocurrency
- You were given free tokens by air launch
“If you had any of these five situations, you would have an obligation to file,” Chandrasekera said.
This year, millions more Americans will have to report this type of activity to the IRS. A total of 46 million U.S. residents now own bitcoins, and that number is increasing every day, according to Chandrasekera.
Of course, just because you have to report an event to the IRS doesn’t mean you have to owe money in taxes. Only transactions that generate gains compared to losses can be recorded.
More and more Americans are entering the world of cryptography as new exchanges enter the market. Cryptocurrency trading platforms made big plays for new users at this year’s Super Bowl, spending millions on 30-second ads that companies like FTX Trading and Crypto.com hope will bring new customers.
FTX.com even gave away bitcoins to some viewers – gifts that winners will have to report on their tax forms this year.
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