With investments in Bitcoin, Ripple, Ethereum, and other types of cryptocurrency increasing significantly in 2017 and 2018, many new investors should be aware of the tax implications of their investments. Cryptocurrency taxes may seem complicated, so many investors file to address them on their returns. This can result in future liability, however, so you want to make sure you understand how to file taxes based on crypto investments. The IRS is paying more and more attention to taxes on digital assets, and so should tax filers.
All Crypto Sales and Trades are Taxable
If you sell cryptocurrency for a profit, convert it to U.S. dollars, or spend cryptocurrency in any manner, you need to report it on your tax returns. Failure to do so can result in tax fraud allegations and serious penalties. The IRS considers crypto to be property – not currency – so a capital gains tax will apply.
If you are a cryptocurrency miner, you may also have to pay self-employment taxes on your earnings. This also means, you can deduct expenses related to your crypto mining activities, and you should discuss your situation with a tax lawyer in San Francisco to determine which expenses may be eligible.
If you are simply buying and holding cryptocurrency without making active trades or sales, you likely do not have to pay taxes on these transactions. Additionally, crypto tokens may be exempt from taxes, though you should always consult with a tax attorney before assuming an exemption applies.
Contact a Tax Lawyer in San Francisco for Answers to Your Specific Questions
Cryptocurrency is only one way that taxes are evolving, and you can bet the IRS will be more and more focused on crypto transactions and the related taxes due. Do not hesitate to discuss the tax implications of your investments with a San Francisco tax attorney at Diosdi Ching & Liu, LLP. Call 415.318.3990 or contact us online to speak with SF Tax Counsel today.