Cryptocurrencies have become a common part of our vernacular these days, so it shouldn’t come as a surprise that there is IRS guidance on their taxability.
So keep track of your trades, your income, and the people you pay using this stuff. Because it is all reportable to Uncle Sam.
A cryptocurrency is a digital currency that can be used to buy goods and services and is basically taxed in three different ways.
1. When you pay someone or get paid in crypto.
If you are an employee who gets paid in crypto, like say Bitcoin, it will be reported on your W-2, much like a regular wage. If you are an independent contractor paid in crypto it will be reported on a Form 1099 – much like your other contracted jobs, says Lisa Greene-Lewis TurboTax ( (INTU) - Get Report) expert and CPA.
2. When you trade cryptos.
If you buy and sell cryptos, you treat the trades much like you would stock transactions. You’ll get a 1099-B that reports your transactions, you’ll be subject to capital gains and losses and you’ll need to report your crypto trades on Schedule D – Capital Gains and Losses.
Big note: If you are an active crypto trader, TurboTax Premier works with cryptocurrency platforms so you can import and upload over 2000 cryptocurrency transactions at one time.
3. When you mine cryptos.
If you mine cryptos, consider it your business, that would mean you would treat the income and expenses as if you run a business.
But be sure to watch the video above for more details or get more advice from Greene-Lewis. So far, her tax tips included: The Stimulus Pkg and Your Taxes, Tax Deductions for Gig Economy Workers, Tax Deductions for Parents With Children, Crypto Investors, and, of course, The Most Overlooked Tax Deductions.