Did you invest in bitcoin, Litecoin, Ethereum or any other cryptocurrency last year? Well, if you’ve reaped gains (and you probably did if you sold cryptocurrency in 2017), then the IRS wants a portion of your money.
In 2017, Bitcoin reigned supreme as one of the baddest “B” words on the internet. People were either trying to get on the bitcoin bandwagon or stating a compelling argument against it. There were even executives from the big four accounting firms who were encouraging students to buy bitcoin in order to immerse themselves in the technology that could potentially revolutionize the financial services industry.
Buying bitcoin is one thing but selling it is another. When you sell any cryptocurrency, you are subject to taxation under the IRS rules. And the IRS takes taxation very seriously.
If you want to avoid a bad relationship with the IRS, here’s what you should know about cryptocurrency and taxes during tax season:
Report Cryptocurrency Activity on Form 8949 and Schedule D
Short-Term Capital Gains Taxed as Ordinary Income
Long-Term Capital Gains Receive Favorable Tax Treatment
Use Basis to Calculate Capital Gains & Losses
Tax Rules for Cryptocurrency Are Evolving
The IRS is actively working to put more rules in place to manage cryptocurrency transactions. Although the appeal of cryptocurrency is largely due to its decentralized features, the IRS is working to make sure they have a stronger grasp on these crypto assets by tracking how it is used and reported.