What You Need to Know About Cryptocurrency and Taxes

On: May 6, 2023

As cryptocurrency rises in popularity, so does the enforcement of taxes by the IRS. The IRS has been ramping up its efforts to crack down on cryptocurrency tax fraud and the number of audits involving crypto continues to rise.

Making sure that you file your taxes correctly is more important than ever, especially if you do have cryptocurrency to claim. You do not want the IRS sending you notices and you definitely do not want to be the poster child for their next crypto audit.

Working with a team of IRS tax experts seasoned in crypto taxes can be the difference between you making it through tax season without an audit or spending the next several months proving to the IRS that you did claim your crypto.

When Do I Owe Taxes on My Cryptocurrency in the US?

All cryptocurrencies, including Bitcoin, are subject to income tax and capital gains. Any time there is a taxable event that occurs, you will need to report the crypto income on your taxes.

Sounds confusing, right? That is because it is. Most taxpayers need help understanding just what needs to be taxed or show up on their taxes, which makes them more likely to be audited. A tax professional can assist in this process and ensure that all taxable events are claimed properly. If you are ever in doubt, talk to your tax team.

When Do I Owe Capital Gains Tax vs. Income Tax on Crypto?

Capital gains tax is determined when you dispose of your cryptocurrency. You can have a gain or a loss depending on the specifics of your crypto at the time of disposal. There are three main types of disposals including:

• Using crypto to purchase something
• Trading crypto for another type of crypto
• Selling your crypto

Any time that you earn cryptocurrency, you will need to pay income tax on it. The tax is based on the fair market value of the crypto at the time you earned it. Some of the earning events that are taxable include:

• Staking rewards
• Mining rewards
• Referral rewards
• Airdrop rewards

Is There Crypto That is NOT Taxed?

Yes. There are some circumstances where your cryptocurrency may not be taxed at all. Some of the non-taxable events include:

• Transferring your crypto from one of your wallets to another one of your wallets
• Holding onto your crypto
• Using crypto as collateral for a loan

Isn’t Crypto Unable to Be Tracked By the IRS?

While you may think that since crypto is technically anonymous that the IRS cannot track it, this is not true. In fact, the major exchanges out there do send 1099 forms to the IRS, which tips the IRS off letting them know that you have crypto to pay taxes on.

What Happens if I Just Don’t Report My Cryptocurrency?

This is definitely not recommended. The IRS will find out and purposefully not reporting your cryptocurrency is considered fraud. It is crucial that you always report your crypto and if you are not sure whether you should, speak with a tax expert.

If you do not report crypto, you could face severe fines and penalties from the IRS.

Leading Tax Group Is the Number One Crypto Tax Experts 

Whether you have invested in cryptocurrency or are thinking about taking the plunge, it is important to have cryptocurrency tax experts on your team. The proper representation will ensure that you are completely protected when it comes to the IRS.

At Leading Tax Group, we know the ins and outs of cryptocurrency and what the IRS requires. We can assist you in properly claiming all of your cryptocurrency and prevent you from making mistakes that can lead to you overpaying, underpaying, or being hit with fines from the IRS.

Call Leading Tax Group today to discuss your crypto taxes!