Guest Post and Photo Credit – Jade Nutt
2020 was well- an interesting year to say the least. For many during the height of the Pandemic, buying-selling-trading-mining Virtual Currencies was a way to pass the time while (hopefully making a few quick bucks right?) dealing with a world unknown. Seemingly most online banking/selling/money transfer platforms got on board to Capitalize on this trading model, which made it widely accessible and introduced hundreds of thousands of people to Virtual Currency.
I have good news and bad news for the most advanced Virtual Currency Connoisseur down to the Amateur Entry Level trader.
We will start with the potential bad news- the IRS knows.
The IRS has issued guidance in IRS Notice 2014-21
The good news- we can help.
Keeping track of your Virtual Currencies in 2021 will be more important than ever- especially if you’re in this for the long hall. You do not want to be left in the dark while gambling on unstable territory. If you’re keeping track and reporting your activity the right way- you have no worries when it comes to potential tax and laws on reporting.
That’s where we can help.
In 2014 the IRS began to treat Crypto as property.
The IRS considers something as property if:
- It is subject to capital gains- like traditional assets, for example Stocks and Bonds.
- Considered digital assets which can be treated as income and subject to income tax.
How can your Crypto Capital Gains be taxed?
- If you are selling Crypto for Fiat.
- Using Crypto to purchase goods or services.
- Trading Crypto.
How can Crypto be taxed as Income?
- Mining income such as block rewards and Transaction fees.
- Receiving Crypto from an Airdrop.
- Interest earnings from “DeFi”- Decentralized finance.
- Earnings from liquidity pools and staking.
- Receiving Crypto as a form of payment- for example, Bug Bounties.
The great thing here is, if you are interested in truly dabbling and dealing in the Virtual Currency world- there are resources and information widely available. Be sure you trust your financial advisors and be smart when it comes to this “New” currency.
We will discuss this more in depth as the layers peel back in this new market.
For now, here are a few helpful reminders to help you navigate your journey through Crypto.
It is important to keep track and note all losses from trading to offset any Capital Gains.
Luckily, you can deduct up to $3000 per year from normal income tax if you keep track of these losses. This is dependent upon how long you have held assets. And you must show a loss across all assets to qualify for Capital Gain reduction.
Any additional losses over $3000 can be forwarded to the next tax year to deduct from future years or to offset future gains.
Do your best to be aware of these quickly advancing currencies, and when in doubt- we are here, so feel free to contact us!
We’ll chat again soon!