IRS Releases Guidance on the Tax Treatment of Cryptocurrency

Crypto investors are receiving warning letters from the US IRS to pay their taxes.

Now I Have to Pay Taxes on My Bitcoin Investment?

The U.S. Internal Revenue Service (IRS) announced last July that it sent a warning to taxpayers who own cryptocurrency, asking them to accurately report their cryptocurrency holdings and pay corresponding taxes.

The cryptocurrency industry has continued to demand that the IRS announce the specific criteria for its decision to tax cryptocurrency by classifying it as an intangible asset.

On October 11, the US Internal Revenue Service has issued new guidance for taxpayers who own cryptocurrency.

US IRS Releases  New Guidance on the Tax Treatment of Cryptocurrency

The guidance spells out detailed tax treatment for airdrops, gain or loss on the sale of exchange of cryptocurrency, and how to calculate fair market value (FMV).

IRS has warned that taxpayers who did not report transactions involving virtual currency or who reported them incorrectly may, when appropriate, be liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.

Q1. One of my cryptocurrencies went through a hard fork but I did not receive any new cryptocurrency. Do I have income?

No. If your cryptocurrency went through a hard fork, but you did not receive any new cryptocurrency, whether through an airdrop or some other kind of transfer, you don’t have taxable income.

Q2. One of my cryptocurrencies went through a hard fork followed by an airdrop and I received new cryptocurrency. Do I have income?

If a hard fork is followed by an airdrop and you receive new cryptocurrency, you will have taxable income in the taxable year you receive that cryptocurrency.

Q3. Where do I report my capital gain or loss from cryptocurrency?

Taxpayers must report most sales and other capital transactions and calculate capital gain or loss in accordance with IRS forms and instructions.

[Reporting contents]
-Form 8949, Sales and Other Dispositions of Capital Assets
– Form 1040, Capital Gains and Losses (capital gains and deductible capital losses)

Q4. What records do I need to maintain regarding my transactions in cryptocurrency?

The Internal Revenue Code and regulations require taxpayers to maintain records that are sufficient to establish the  positions taken on tax returns.  You should therefore maintain, for example, records documenting receipts, sales, exchanges, or other dispositions of virtual currency and the fair market value of the virtual currency.

“The IRS plans to investigate whether cryptocurrency investors’ taxes are correctly paid, based on enhanced data analysis results.”
– Charles Rettig, Head of IRS

Emma Kang

Author Emma Kang

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