Tax season is here, which means cryptocurrency enthusiasts need to figure out if crypto will play a role in their taxes this year. For tax purposes, the IRS treats virtual currencies as property. The purchase of crypto assets using fiat currency like U.S. dollars doesn’t trigger the reporting requirement. However, any sale or trade from one crypto to another needs to be reported, as there will be a potential gain or loss on the tax return.
Capital gains – when the price of the crypto held goes up – can be categorized either as short-term or long-term. Generally, if the asset is held for more than 365 days, the proceeds are classified as long-term and typically taxed at 15%. If held for a shorter time, the gains are taxed like ordinary income with rates as high as 37%. Similarly, capital losses can be deducted by traders.
Online platforms like those from TurboTax and H&R Block can help with the filing process, and specialized tools like CoinTracker are available with dedicated support for cryptocurrency tax reporting. However, given the relative newness of crypto, it might be worth hiring a tax professional to take care of it.