Crypto has its ups and downs, but there’s no denying that it holds huge potential as a currency and investment opportunity. Unfortunately, as with any income source, you’ll eventually lose some of your profit to taxation.
Determining taxes can be tricky in the crypto world — and the consequences for not paying up can be surprisingly harsh. Read on to get a handle on the basics of cryptocurrency taxes:
Cryptocurrency Is Property
Currency may be in its name, but as far as the IRS is concerned, cryptocurrency acts as property and thus subject to short term or long term capital gains tax. Cryptocurrency profits are subject to the same type of taxation that applies to stocks and bonds. These profits must be reported accordingly to the IRS.
Whether crypto activity warrants taxation largely depends on if a taxable event occurs as defined by the IRS. A variety of circumstances qualify as taxable events; most commonly, these events occur when virtual currencies are traded for cash or with one another. The purchase of goods or services with virtual currency can also be deemed a taxable event. Even seemingly minor transactions can qualify as taxable; this causes many a headache for crypto users, who risk audits if they fail to report or pay taxes on small purchases.
Personal Theft Losses Are Not Available
Bad news if you’ve been the victim of crypto theft: you are no longer permitted to deduct it as a theft loss on your taxes. The IRS, unfortunately, did away with this opportunity, leaving miners and traders that much more vulnerable in a time of great risk.
Cryptocurrency taxes may seem complicated, but you don’t need to pursue this process on your own. The knowledgeable team at the Highland Tax Group can help — contact us today to learn more.