"Don't judge each day by the harvest you reap but by the seeds that you plant." -Robert Louis Stevenson
In recent years, some cryptocurrency traders have been caught off guard by the surprise tax bill generated from their trading activities. Many others have simply failed to report these transactions to the IRS at all, unaware that they even need to. Those folks in particular are in for a rude awakening someday, as the IRS expands its enforcement against crypto traders.
So, what are your responsibilities as a crypto trader? What if you’re not actively trading these assets, but simply holding them? What records should you be keeping?
Crypto is Taxed as Property
Let’s start with the most important thing you need to understand about crypto, and its relationship with the IRS: The federal government taxes crypto like property.
In other words, the IRS looks at crypto the same way it looks at houses, cars, paintings, even baseball cards. While crypto obviously isn’t a tangible asset the way a painting is, the IRS treats it the same way for tax purposes.
If you buy a painting today for, say, $10,000, and then you sell that painting in December for $30,000, then you’ve made a profit in 2021. You might have some transaction costs, like commissions or listing fees that reduce that profit. Let’s say you pay a 10% commission to an auction house to sell your painting. Sale price was $30,000, so your actual profit is reduced by $3,000, which mean ... Read More…