Five Things You Thought You Knew About Cryptocurrency and Taxes
In the world of cryptocurrency, there are many myths floating around about taxes that simply are not true. We discuss them below.
Many people believe that cryptocurrency gains or losses are not taxable if they were incurred due to an exchange between two different currencies. Additionally, many were under the impression that this was specifically true for exchanges prior to January 1st of 2018.
The truth is that every time a cryptocurrency is sold, whether it is exchanged for another cryptocurrency or for fiat money, the transaction must be reported and the loss or gain calculated for tax reporting.
Additional confusion was caused by the tax law the President signed in December of 2017. The new tax law stipulates that like-kind exchanges under section 1031 only applies to real property starting on January 1, 2018. But, neither the old tax law nor the new tax law ever treated cryptocurrency in a way that qualified it as a like-kind exchange.
Another myth is that if cryptocurrency is stored on an exchange or in a cryptocurrency wallet, but is not sold and exchanged for fiat money, it is not a taxable event. But, the IRS explained in Notice 2014-21 that any cryptocurrency received as payment must be reported at its fair market value in dollars on the date it was received. This amount becomes the basis for calculations of gains or losses in the future.
Whole Story at TFX.