Undoubtedly, 2018 would be a milestone year for tax imposition of crypto gains. Taxpayers should now stand ahead of the game as almost every cryptocurrency transaction, mining, trading, exchanging would be liable to tax. The IRS is more forgiving to those who come on their own as taxpayers rather than those who get discovered. The IRS suspects that there are many crypto users who are escaping from paying taxes. There are only seven hundred people reporting their crypto gains, rest have not reported crypto transactions on their tax returns.
It is unfortunate to see that IRS has given a very little guidance with regard to crypto taxation. However, the public considers bitcoin and altcoin as virtual currencies, but the IRS treats them as property for tax purposes. Let us bring a light to some specific crypto transactions and their tax implications.
Crypto trading is liable to produce capital gain and loss. This gain and loss ultimately relate to the increment and decrement of the payable tax.
Crypto exchanges create a taxable task. The token is considered as being sold, and thus it generates capital gains and losses.
- Receiving Payments in Cryptocurrency
Payments received in crypto for services, products or as salary is treated as ordinary income which is liable to pay tax.
- Spending Cryptocurrency
This is also a taxable event and it may generate short term or long term capital gains and losses.
- Converting Crypto to Other Currency
Conversion of cryptocurrency to some other currency is a taxable event as the currency is treated as sold and thus generates a capital gain.
Apart from the above-mentioned activities, crypto mining, initial coin offerings, air drops etc. are treated as taxable. Although identification of specific coin being sold or exchanged enables taxpayers to handle short term and long term capital gains. Since guidance has been provided by IRS, therefore taxpayers are allowed to choose their methodology of paying tax.