In 2014, the IRS issued Notice 2014-21, 2014-16 I.R.B. 938, explaining that virtual currency is treated as property for Federal income tax purposes. The notice describes how existing general tax principles apply to transactions using virtual currency. Below are some frequently asked questions regarding Cryptocurrency and Taxes.
If you purchase cryptocurrency and earn interest on it, are there taxes? If so, how are the taxes calculated?
The purchase of cryptocurrency is classified as property. A taxable event occurs when a taxpayer exchanges virtual currency for other property. The amount of gain or loss is based on the difference between the fair market value of the property received and the adjusted basis of the property given up.
When moving (rolling over) an established IRA to a self-directed IRA like BitIRA, are any taxes due?
The safest and easiest way to roll over is with a trustee-to-trustee transfer. The rollover will not have any tax implications by rolling a traditional IRA or a 401k plan to a BitIRA.
If I buy and sell the same cryptocurrency multiple times a day, am I taxed every time I sell?
Yes, a taxable event occurs each time you sell any amount of crypto in a given day. The rules are similar to the purchase and sale of securities. The one exception is that crypto transactions are not subject to the wash sale rules.
How could the Build Back Better bill affect the ways cryptocurrencies are taxed?
The Build Back Better Act would subject cryptocurrency transactions to wash sale rules, that currently apply to stocks and bonds, starting in 2022. The fact that cryptocurrencies are dissimilar enough that selling Bitcoin and then quickly buying Ethereum would not violate the rules. The similarities begin and end with the coins being exchanged on a blockchain.
Is there anything I can do to reduce my cryptocurrency tax bill?
- Strict record-keeping is needed to track your cryptocurrency transactions.
- Taking advantage of the fact that wash sale rules do not apply
- Lower capital gain tax treatment of cryptocurrency gains could be lower than ordinary tax rates depending on your income level
Share This Story, Choose Your Platform!
Check Out Our Other Blogs!
Whether you know exactly what accounting service you need or have a tough question, The Innovative CPA Group team is here and ready to help. Let’s collaborate to accomplish your personal or business goals.