IRS FUD: What you need to know about crypto taxes – TechCrunch

Maybe you’re one of the millions of Americans who jumped on the Bitcoin bandwagon in 2021. Or perhaps you’ve become an active crypto trader. Or maybe digital currency bonuses have become part of your compensation package at work. You might have even used some of it to buy something or pay someone else for their services.

Perhaps you’ve been thinking, cryptocurrencies aren’t physical currencies; they aren’t even regulated by the U.S. government. That means I don’t have to pay taxes on profits I make from trading crypto, right?

Wrong.

Even though the U.S. Internal Revenue Service’ rules around crypto are sketchy in many areas, they’ve made it clear that virtual currency is treated as an investable asset for tax filing purposes.

Taxable gains and losses

For calculating taxable gains and losses, crypto transactions are treated exactly the same as those involving stocks, bonds or mutual funds.

• If you sell crypto for more than you paid for it, the profit will be taxed as a short-term capital gain if you held the currency for less than a year. Generally, people try to avoid short-term capital gains because they’re taxed as ordinary income.
• If you make a profit selling crypto you’ve owned for more than a year, it will be taxed as a more preferable long-term capital gain. The tax rate will either be zero, 15% or 20%, depending on your income.
• If you sell crypto for less than what you paid for it, you can take a capital loss, which can reduce your taxable income or offset capital gains from the sale of other assets.

Seems relatively simple, right? But what if you’ve traded Bitcoin, Ethereum, or other cryptocurrencies throughout the year, profiting from some transactions and losing money on others?

Will your crypto exchange help you accurately calculate how much you’ll owe Uncle Sam?

The answer is: It depends.

Fuzzy tax support

Since crypto exchanges aren’t regulated by the U.S. Securities and Exchange Commission, they’re not legally required to offer the same level of tax reporting that discount brokerages and custodians must provide to stock, bond and mutual fund investors.

While some U.S.-based crypto exchanges offer basic summaries of taxable proceeds from crypto-related trading activities, many do not.

And, to the best of our knowledge, none currently generate IRS Forms 1099-B and 8949, which brokerage companies and custodians deliver to consumers to help them report income and capital gains and losses from the sales of investable assets.