Gaming

Tax Basics: Do You Pay Tax on Crypto Currencies?

Cryptocurrencies are seen by the IRS as assets and thus create taxable events when used or cashed in, so if your cryptocurrency’s value has increased you may owe taxes based on its fair market value at the time of transaction; conversely if its value has decreased you might experience a capital loss that is also subject to tax.

If you accept cryptocurrency payments as payment, they’re taxed the same way cash or credit payments would be. Your dollar value depends on its fair market value at the time and day of transaction – regardless of where it came from – exchange, hard fork or airdrop.

Trades between crypto assets on cryptocurrency exchanges are considered taxable events and taxed based on the fair market value of each coin at the time of trading, for instance when exchanging bitcoin for ethereum you will realize a $600 realized profit that must be declared to authorities as income taxed at 30%.

When trading cryptocurrency within an account that defers or eliminates taxes altogether – such as a Traditional or Roth IRA – transactions aren’t subject to tax. But for record keeping purposes, you must still keep track of each trade.

Mining cryptocurrency can be a lucrative way to earn money by solving complex equations that record information on a blockchain network. You are then awarded new crypto tokens in return for your efforts; should its value increase while mining, any new tokens you earn may incur taxes based on their fair market value at the time of their awarding.

Harris reported that many investors fail to report gains on their crypto investments, according to his sources. Although the IRS won’t come after everyone who fails to disclose gains and losses on Bitcoin trades, they will pursue those who knowingly or recklessly disregard their tax obligations.

Tracking cryptocurrency transactions can be daunting, but it’s crucial for avoiding IRS audits. Should you require additional assistance, H&R Block tax professionals are on hand to explain the tax basics associated with crypto currencies so you can file your taxes with confidence.