If you decided to buy the dip this year and dove into the world of cryptocurrency (crypto) investing, there’s likely one more important step in your education: filing taxes*. Whether you bought Bitcoin, Ethereum, or NFTs, you might have opened yourself up to a brand new type of tax liability, and ignorance of tax law doesn’t protect you from the IRS. Here’s some of what you need to know before tax day this year.
Crypto is NOT a Currency
The downside of entering the world of cryptocurrency right now is that there still isn’t a ton of information from the government as they’re still learning about this relatively new asset class. Despite the name, cryptocurrency is not treated as a currency by the feds. Instead it’s regarded by the IRS as a digital asset similar to assets like property or gold and silver, and it’s taxed that way too.
You’ve Gotta Pay Your Taxes – Or Else
Because crypto is an asset, every crypto transaction that realizes gains (or losses) is a taxable event. This includes selling crypto for cash, using one token to buy a different token, or making a purchase with cryptocurrency. It’s also taxable as income if you received cryptocurrency, such as if you’ve done mining, earned rewards from staking a token, or received it as a form of payment.
How to File Your Crypto Taxes
Don’t expect to get ready-to-file tax forms from crypto exchanges. At best you’ll get a list of any buys and sells you made on their exchange; you’ll have to track these yourself using other software. Some may send you a 1099-MISC if you earned any income from certain crypto investing activities, but it’s still a good practice to keep track of your transactions and earnings yourself.
Some self-prep tax software now allow you to report your gains and losses, but they still rely on you to understand the ins and outs of the transactions you made. If you were doing some more advanced investing techniques, or if you recognize the words “mining,” “staking,” or “fork,” then the free versions of your preferred tax preparation software might not have the specific tools and fields you need. Make sure to check before the filing deadline creeps up on you! And as always, when in doubt, consult a knowledgeable tax professional who knows about cryptocurrency.
For more information about investing and planning for your future, visit the Hanscom Investment Services website.†
*This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax advice. Please consult a tax professional for specific information regarding your individual tax situation.
†Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Hanscom Federal Credit Union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Hanscom Investment Services, and may also be employees of Hanscom Federal Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, Hanscom Federal Credit Union. Securities and insurance offered through LPL or its affiliates are:
Not Insured by NCUA or Any Other Government Agency / Not Hanscom Federal Credit Union Guaranteed / Not Hanscom Federal Credit Union Deposits or Obligations / May Lose Value
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