Cryptocurrency Taxation

Updated: Jan 25


If you have investments in cryptocurrencies, a summary of tax issues at a high level will be helpful.

  1. Mining, staking or earning interest produces ordinary taxable income. Good news is that associated expenses are tax deductible.

  2. When cryptos are sold, capital gains/losses are generated.

  3. Hard Fork generally results in ordinary income.

  4. Purchase of goods and services by cryptos is simultaneously a sale of the cryptocurrency and purchase of goods or service, resulting in capital gains/losses.

  5. Getting compensation by cryptocurrency for work performed is ordinary income.

  6. Cryptocurrency is property, not currency or security.

  7. Cryptocurrency record keeping remains a nightmare. Fortunately, the expectation is that the IRS will be lenient due to lack of clarity.

  8. Property settlement entities (e.g. eBay) are required to report payments made to merchants via cryptocurrency on form 1099K if the number of transactions exceeds 200 and gross amount exceeds $20,000.

  9. The USD conversion from cryptocurrency can be calculated by using a large cryptocurrency exchange’s conversion rate or an average of 3 large exchanges, as long as the same method is used consistently.

The area of crypto and virtual currency is in developing and in state of flex. Meanwhile the use of cryptocurrency as a medium of exchange and store of value is increasing exponentially.

You can reach out to our firm with your crypto currency tax questions.