Trading Cryptos and the Tax Man

Understanding Tax Impacts of Trading Cryptocurrencies

It is important to note that if you are trading any for of cryptocurrencies, each and every transaction you make whether buying a cryptocurrency, exchanging one cryptocurrency for another, or selling and converting into fiat currency generates a taxable transaction in the eyes of the IRS.

The IRS recently issued a pronouncement which I believe was article 2014-21 in which it states that the IRS will treat cryptocurrency transactions as property transactions similarly to how stocks and real estate transactions are treated.

What this means is that the gains and / or losses that you have generated throughout the year are reportable on the Schedule D of your tax returns as capital gains or losses. Furthermore, you will be required to report each and every transaction in detail on a form 8949 to submit along with your tax return.

If you mine cryptocurrencies you may even begin to fall into a category where the IRS views this as running a business which could create tax implications of their own which I am not as well versed in.

One potential alternative would be to defer taxes to a later date at which time you convert your money back into fiat money. You would theorecitcally be able to accomplish this by reporting any transaction where you traded one form of cryptocurrency over for another and did not withdraw any money back into your local fiat currency. This is what is referred to as a "like-kind" transaction and would be reportable on a separate form called the 8824.

One final note is that with most forms of cryptocurrencies that use blockchaim technology transactions occur on a public ledger which make it entirely possible for the IRS to track your transactions. The IRS is a major government entity and has massive resources at its disposal so it would be wise to put some time in to researching this further and formulating your own opinions on how to handle this matter now that tax time is upon us.

A quick disclaimer is that although I have a wealth of experience in accounting and personal finance this should not be considered direct tax advice as to how you should handle your own affairs. This is strictly information to help you formulate your own understanding and your to make your own decisions.

I hope you found this article helpful and thank you for reading!