Cryptocurrency and Taxation
June 28, 2021 | Cryptocurrency
We're excited to announce our strategic partnership with CryptoEQ! We're looking forward to aligning our shared values, vision, and mission with the CryptoEQ team to propel the crypto community forward through industry-leading research, market insights, and tax planning strategies!
CryptoEQ provides real-time cryptocurrency market summaries, insights, and price data for their community of traders and investors. They take the complexity of cryptocurrency and simplify it to help members make the best decisions for their investments.
Keep reading for more insights on cryptocurrency, taxation, and how this partnership can help you navigate tax season accurately and effectively.
How is cryptocurrency taxed?
IRS Notice 2014-21 gives us guidance on how virtual currencies are viewed and how they should be claimed on a return. For federal income tax purposes, cryptocurrencies are viewed as property and each taxpayer is required to report transactions where these currencies are either held as investments, used to pay for services and goods, or traded.
Cryptocurrency used to pay for services and goods
When you buy services or goods using crypto and the amount of cryptocurrencies you spend has increased in value from what it was bought for, your transaction generates profits which are taxed.
For example, if $20 worth of Bitcoin is bought and held until it is worth $200 then is spent to buy $200 worth of food, capital gains taxes will need to be paid on the profit made from $180. Whether spending or selling Bitcoin, the IRS recognizes those activities identically.
Cryptocurrency that is traded
A taxpayer only owes taxes when their crypto makes a profit. If you spend or sell your cryptocurrency at a loss, you owe no tax on the transaction.
For example, if $10,000 worth of Bitcoin is bought and then sold for $13,000, resulting in a profit of $ 3,000; this profit is taxed. In a different circumstance, if $10,000 worth of bitcoin is sold for $7,000, resulting in a loss of $3,000, tax is not owed on the transaction.
How is tax liability determined?
Tax liability depends on annual income and how long a taxpayer has kept the cryptocurrency.
If a taxpayer has kept an investment for a year or more, any profit would be a long-term capital gain, taxed at a lower rate, determined by annual income.
If a taxpayer owned crypto for less than a year before it was spent or sold, profits would be short-term capital gains and taxed according to the taxpayers usual income tax rate.
Cryptocurrency earned as payment for services or goods or received as a promotion or by mining, are valid as normal taxable income. A taxpayer owes a tax on the total amount of crypto on the day it is received, at the taxpayer’s income tax.
Contact the PTR team
If you have cryptocurrency and are expecting to have tax liability at the end of the year, reach out to the PTR team to help you properly assess and claim these transactions. If you are not sure, reach out to us and we can help you determine where you stand and what your next steps are. Our partnership with CryptoEQ is put in place to help you navigate your particular tax situation and make the best decisions for your investments. Use promo code Probity at the CryptoEQ website to take advantage of these services.