US Tax Implications on Cryptocurrency Transaction

US Tax Implications on Crypto-Currency

Cryptocurrency is a network-based currency with the ability to be traded digitally without being tracked thanks to blockchain technology. Bitcoins are currently one of the most well-known types of cryptocurrencies. Dogecoin, Ethereum, Litecoin, IOTA, NEO, Monero, Ripple, Steam, and others are some popular cryptocurrencies.

Common Crypto Activities:​

  • Buying cryptocurrency is not a taxable event. The tax liability shall arise only when it has been sold or disposed of.
  • Selling crypto for fiat money, i.e., Government-issued currency, is taxable as property, meaning any gains arising on the sale are taxable as capital gains. For example, if you buy $2000 of Bitcoin (this is your cost) and later sell it for $2500, you will incur a capital gain of $500.
  • Trading one type of crypto for another type is again taxable as a capital gain.
  • Using cryptocurrencies as payment for goods and services qualifies as disposal, and any resulting gains or losses must disclose on Form 8949.
  • The cryptocurrency of any sort, earned via mining or staking, is subject to taxation as income. In contrast to previous examples, any profits made here will be taxed at the ordinary income tax rates. At the time the coin is not sold, the taxed amount will be the same as the asset’s fair market value. You will be required to report the capital gain or loss on Form 8949 if it is later sold. Any money earned from receiving payment in cryptocurrency, like mining or staking cryptocurrency, is taxable as income. This must be reported on Form 1040.

Taxability of Crypto-Currency Transactions in the US:​

  • Schedule D
  • 040 Schedule 1 or 1040 Schedule C (in some cases)
  • IRS Form 8949

Cryptocurrency, its regulation and classification by the IRS, and the taxes it is subject to. And how its use affects tax liabilities are all subject to constant change.

At 4i Advisory, we provide business and income tax returnsaccountingaudit supportdirect taxprivate equitypayrollassuranceUS-India tax and sales tax services to just name a few in the United States of America. To know more information please contact us (Urvesh Patel – urvesh.patel@4iadvisory.com) and we would be happy to assist you.

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