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Basic Tax Tips for Cryptocurrency

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Accounting for cryptocurrencies can be confusing. Here are a few tips you should be aware of when calculating your holdings and associated gains or losses for 2018:

  • Cryptocurrency is treated as property for tax purposes.
  • Trading cryptocurrency to fiat currency (i.e U.S. Dollar) is a taxable event, or a realizable event resulting in a gain or loss.
  • Trading cryptocurrency to cryptocurrency is a taxable event (i.e. selling bitcoin to purchase Ethereum)
    • Remember to calculate the fair market value in fiat currency at the time of the transaction.
  • Using cryptocurrency to purchase goods or services is a taxable event.
    • Remember to calculate the fair market value in fiat currency at the time of the transaction.
  • Gifting cryptocurrency to another individual does NOT result in a taxable event.
    • They recipient will inherit the cost basis from the original user.
    • The individual gifting cryptocurrency will have to ensure they are in compliance with the gift tax.
    • For 2018, the annual exclusion for gifts is $15,000
  • A wallet-to-wallet transfer is NOT a taxable event
  • Purchase cryptocurrency with USD is NOT a taxable event. You do not have to realize any gains or losses until you trade, use, or sell your crypto.
    • If you hold longer than a year you can realized long-term capital gains and/or losses, which are about half of the tax rate of short-term.
    • If you hold less than a year, you realized short-term capital gains and/ or losses.

It is important to keep a log of your transactions and trades with as much detail as possible in order to accurately calculate your holdings and tax position.