What is Cryptocurrency?
Contributed by: Peter Dukas, Staff Accountant
Cryptocurrency is a “virtual currency” that can be actively traded on multiple platforms. A few of the most common trading platforms, such as Coinbase, Robinhood, and several others, allow for taxpayers to actively trade these currencies.
How does trading Crypto Impact Taxable Income?
In response to the crypto market and the millions of trades that occur every day, the IRS has determined under notice 2014-21 that virtual currency is recognized as property and subject to capital gains tax. As a result, selling cryptocurrency at a gain is a taxable event and should be reported on Schedule D. In addition to reporting gains, any losses up to $3,000 are deductible.
Do I Have to Report Crypto Gains if I Did Not Receive a 1099?
Yes, you do need to report cryptocurrency gains even if you do not receive a 1099. Due to Crypto being a new and upcoming form of trading, most Brokers are not issuing 1099s for Crypto yet. But all trades still need to be reported on the Schedule D.
The IRS is expected to require all crypto brokers to begin sending 1099s beginning in 2023. As a result, much of the reporting burden has fallen on the taxpayer. To make individuals aware of the requirement to report these transactions, the IRS has included a question on individual returns asking filers whether they have received, sold, exchanged, or otherwise disposed of any financial interest in any virtual currency.
How Is Basis Tracked?
The most challenging part of reporting crypto is determining basis for reporting the gain or loss. Crypto traders need to keep detailed records of currencies’ purchase price and selling price. Depending on the platform used for trading, the records can be difficult to work through to determine basis. Several platforms will have year-end summarized transactions for the applicable tax year and these can be used to calculate basis.
Contact Leone, McDonnell & Roberts Today to Learn More
If you have questions about reporting cryptocurrency gains or losses, we can help. Contact Leone, McDonnell & Roberts to connect with one of our experienced tax professionals today.