What Are the Tax Implications of Cryptocurrency Trading and Investing?

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What Are the Tax Implications of Cryptocurrency Trading and Investing?

Navigating cryptocurrency tax laws can be a daunting task. To help you, we’ve gathered insights from three professionals in the accounting and tax law sectors. From treating crypto as property to maintaining detailed records and classifying correctly, here are answers to the question, “What are the tax implications of cryptocurrency trading and investing?

  • Treat Crypto as Property, Keep Records
  • Hold Long-Term, Consult Specialists
  • Maintain Detailed Records, Classify Correctly

Treat Crypto as Property, Keep Records

In the Wild West of cryptocurrency, the sheriff is the IRS, and they’ve made it clear: cryptos are property, not currency. Treat every crypto transaction like you’re trading baseball cards. If you swap a Mickey Mantle for a Babe Ruth, you’ve got to report the difference in value. It’s the same with Bitcoin and Ethereum.

Businesses stay compliant through meticulous record-keeping. Imagine you’re a squirrel preparing for winter; every acorn (or in this case, transaction) needs to be accounted for. Keep track of every trade, every purchase, every mined coin. When tax season rolls around, you’ll be glad you did.

In the crypto game, the house always wins, and in this case, the house is the IRS.

James Allen
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James Allen
Founder, CPA, CFP, CFEI, Billpin.com


Hold Long-Term, Consult Specialists

Cryptocurrency is treated like property for tax purposes. If you hold it as a capital asset for longer than one year, any gain on sale over your basis will be taxed at the favorable long-term capital gains rates.

Companies that use coins or tokens to compensate employees should first consult with a specialist to avoid unexpected traps. For example, an option to purchase tokens is not exempt from tax code Section 409A merely because it is given a fair market value exercise price. Rather, the option needs to be made to be exercisable only on certain events, like a change in control or a fixed date.

Mike Baker
Managing Partner, Baker Tax Law


Maintain Detailed Records, Classify Correctly

One crucial tip for individuals engaging in cryptocurrency trading or investing is to maintain detailed records of all transactions. This includes keeping track of the dates, amounts, and values of each trade or investment. These records are essential for accurately calculating gains or losses and determining the appropriate tax liabilities.

In addition to maintaining meticulous records, businesses must take proactive measures to stay compliant with cryptocurrency tax laws. Firstly, it is crucial for businesses to properly classify cryptocurrencies for tax purposes. The classification of cryptocurrencies as either property, currency, or securities can have significant implications on the tax treatment. Therefore, businesses should consult with legal and tax professionals to ensure they are correctly classifying their cryptocurrencies and reporting them accordingly.

Mike Schmidt
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Mike Schmidt
Civil Trial Law Specialist, Personal Injury Trial Law Specialist by the Texas Board of Legal Specialization, and Civil Trial Specialist by the National Board of Trial Advocacy, Schmidt & Clark


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