Cryptocurrency is new and ever changing. If you invest in cryptocurrency it is essential to stay up to date on the associated tax regulations. Businesses and individuals use cryptocurrency for a variety of reasons. For example, Investing in cryptocurrency generates returns that can be used to boost your portfolio, make payments, or save through investing.
The IRS calls cryptocurrency “convertible virtual currency.” This means that they consider cryptocurrency as taxable income. They require you to report when you use cryptocurrency in exchange for goods or services. The IRS considers cryptocurrency as a capital asset such as owning a house, car, or stock. When you sell cryptocurrency it is subject to capital gains tax.
Cryptocurrency value fluctuates. It is recommended to keep a detailed track of your cryptocurrency including: when you purchased it, the initial price, value increases and value loses. Impairment charges are decreases in your cryptocurrency holding and should be recorded. When you hold cryptocurrency for over a year it is considered a long term capital gain.
Traditionally, brokers are licensed individuals or firms who serve as the middleman between a buyer or investor and seller. Under the new Infrastructure Bill brokers will also include cryptocurrency brokers. In addition to individuals and businesses following cryptocurrency tax regulations, brokers have the same responsibility. It is suggested that cryptocurrency brokers closely monitor their trades and the individuals involved. Reporting this information is required. Apart from brokers it is important that anyone involved in cryptocurrency continues to educate themselves on the laws and regulations. It can be helpful to seek services and advice from accountants and tax consultants as cryptocurrency and its policies change and evolve.