The development of Bitcoin and numerous other cryptocurrencies within the last ten years has changed the definition of money through-out the world. This currency is still a NEW way of investing for most of us. Advocates of these currencies are hoping they will become a universal currency to be used through-out the world in the future. El Salvador recently became the first country to adopt Bitcoin as “legal tender” to be used in any transaction from buying groceries to paying for capital goods and/or purchasing stock.
Using cryptocurrency to trade stock leads to another question. ARE GAINS/LOSSES reportable and taxable? YES, buying and selling crypto is taxed as a capital gain. The holding period to distinguish short/long term are the same as any other capital trade.
Keeping track of the above information is easy if you use a broker (Robinhood, etc.) that issue a Form 1099-B at year end. If you use other crypto exchanges you will need to track the gains or losses on your own. These exchanges are NOT brokers and will NOT use Form 1099-B’s.
You will need to track:
Purchase Date & Price
Sale Date & Price
This can get time consuming if you are buying and selling frequently. It is still taxable income and you are required to report it on your tax return.
When using crypto to purchase goods such as clothing or furniture, the IRS is currently considering the purchase as selling the currency and the transaction needs to be reported as a Gain/Loss.
You tax-preparer will need the information on an annual basis to report your activity. The IRS is actively looking at these types of transactions. BEWARE AND KEEP GOOD RECORDS!!