Do I need to report cryptocurrency on my taxes?

Cryptocurrency, a type of digital asset, is a fairly new form of currency. Governmental agencies continue to determine the best we can handle this asset. Although rules and regulations are not currently complete, it is important to note that in some situations tax obligations are present.

Does the Internal Revenue Service tax cryptocurrency?

The Internal Revenue Service (IRS) considers cryptocurrency a taxable asset. As such, this asset must generally be accounted for on one's tax returns. A failure to do so could result and criminal charges of tax evasion. If successful, a conviction could lead to up to five years imprisonment along with the monetary fine of up to $250,000.

How should a taxpayer account for cryptocurrency on their tax return?

Do you need to report cryptocurrency on taxes? In short, the answer is maybe. If you do anything more than simply buy and hold a cryptocurrency, a tax obligation may exist.

Which leads to the next question — if more was done with a cryptocurrency, how does a taxpayer account for the asset on his or her tax filings? The IRS considers cryptocurrency property, not currency. This means a different set of rules apply. Essentially, it means capital gains on cryptocurrencies are taxable.

One notable exception: use of cryptocurrencies as income. If this is the case, income taxes would apply.

Navigating the regulations and expectations tied to reporting cryptocurrency is a complicated and evolving area of law. As such, anyone that finds themselves in this situation is wise to seek legal counsel to avoid potential conflict with the IRS.

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