Capital gains on crypto transactions are easy to track, one at a time. What about when there are thousands?
Cryptocurrency capital gains taxes are becoming a point of interest for governments. In 2017, which will likely come to be known as the year crypto went mainstream, the combined market cap for all cryptocurrencies rocketed up from 15 billion to over 600 billion dollars. This kind of growth is hard to ignore — not just for the day traders and blockchain evangelists but for governments as well. This article focuses on how the United States specifically approaches crypto taxation.
Don Fort[1], the chief of the IRS criminal investigation unit, speaking on a recent tax conference panel, discussed at length how “cryptocurrency is becoming a new area of enforcement for him.” Other events like the IRS Coinbase Summons[2] and the IRS warning[3] sent to tax filers show the clear intentions of the U.S. government.
Because cryptocurrency is treated as property[4] (not as currency), it is subject to capital gains taxes — just like stocks, bonds, real estate and other forms of personal property. Boiled down, you incur capital gains whenever you sell property for more than you purchased it for. You then report this gain on your yearly taxes, and that’s the end of it. The same is true for cryptocurrency.
While the intentions of the government are clear — they want you to report your crypto gains — active crypto traders know that the sheer volume that comes with trading crypto brings about a slew of challenges and headaches for tax reporting purposes. Before diving into these challenges, we should break down capital gains.
How Do I Calculate My Cryptocurrency Capital Gains?
Fair Market Value - Cost
