These are the facts regarding cryptocurrency for your 2021 Tax Return.
- Cryptocurrency is taxable
- Cryptocurrency is income when received for services or as wages
- Report cryptocurrency transactions on your tax return in U.S. dollars
- Your cryptocurrency exchange is required by law to provide you with a 1099-B Report of Brokerage Transactions by January 31, 2022. Learn more about about the different types of tax reporting challenges.
*The IRS uses the term “Virtual Currency” to refer to all the different types of convertible virtual currencies such as digital currency and cryptocurrency.
The following are answers provided by the IRS about Virtual Currencies and your taxes.
Will I recognize a gain or loss when I sell my virtual currency for real currency?
Yes. When you sell virtual currency, you must recognize any capital gain or loss on the sale, just as you would on the sale of stocks. Publication 544, Sales and Other Dispositions of Assets.
How do I determine my basis in virtual currency I purchased with real currency?
Your basis (also known as your “cost basis”) is the amount you spent to acquire the virtual currency, including fees, commissions and other acquisition costs in U.S. dollars.
Do I have income if I provide someone with a service and that person pays me with virtual currency?
Yes. When you receive property, including virtual currency, in exchange for performing services, whether or not you perform the services as an employee, you recognize ordinary income. Publication 525, Taxable and Nontaxable Income.
If I donate virtual currency to a charity, will I have to recognize income, gain, or loss?
No. If you donate virtual currency to a charitable organization described in Internal Revenue Code Section 170(c), you will not recognize income, gain, or loss from the donation. Your charitable contribution deduction is generally equal to the fair market value of the virtual currency at the time of the donation if you have held the virtual currency for more than one year. If you have held the virtual currency for one year or less at the time of the donation, your deduction is the lesser of your basis in the virtual currency or the virtual currency’s fair market value at the time of the contribution. Publication 526, Charitable Contributions.
I received virtual currency as a bona fide gift. Do I have income?
No. If you receive virtual currency as a bona fide gift, you will not recognize income until you sell, exchange, or otherwise dispose of that virtual currency. For more information about gifts, see Publication 559, Survivors, Executors, and Administrators.