As the world of cryptocurrency continues to grow and evolve, it's important to stay informed about the various rules and regulations that apply. Unfortunately, the lack of clear guidance in this area can lead to confusion and mistakes when it comes to reporting requirements.
To help you navigate this complex space, we've compiled a list of common misconceptions around some key subjects.
IRS Reporting Requirements:
Contrary to popular belief, the IRS requires most cryptocurrency transactions to be reported. This includes buying cryptocurrency with USD, holding it, and transferring it between accounts.
Properly Calculating Capital Gains/Losses:
When it comes to calculating gains or losses on cryptocurrency sales, it's important to consider the cost basis (the original purchase price) and the selling price. Keep in mind that losses cannot be claimed until they are final, such as after a bankruptcy court decision.
Airdrops, Fork and Split Reporting Requirements:
Properly reporting splits, forks, and airdrops can be challenging in cryptocurrency tax. The IRS considers these events to be taxable, and recipients must treat any new cryptocurrency as ordinary income. This applies even if the recipient did not plan for the airdrop, fork, or split.
Improper Reporting of Cryptocurrency Earned Income:
The IRS views cryptocurrency as property, so buying, selling, or exchanging it can result in a taxable gain or loss. These transactions should be reported on Form 8949. However, if you receive cryptocurrency as income or earn it through activities like buying and selling, it is considered ordinary income and should be reported on Form 1040.
As you can see, there are a variety of nuances and rules to consider when it comes to cryptocurrency tax. Staying informed and keeping track of your transactions is key to ensuring proper reporting and compliance.