Cryptocurrency and Your Taxes

Crypto as Capital Gains

Cryptocurrency is still a fairly new way to make money, but the Government has wasted no time including it in tax law.

Most people who deal in crypto generally stick to buying, selling and trading. In this case, it is reported in the same way that capital gains are. Taken into consideration are gains, losses, original purchase price and the purchase date.

Crypto is usually reported to an individual on a Form 1099-B, though depending on the platform used for trading, it may be up to you to keep your own records. Either way, these types of transactions are reported on a Schedule D and attached to your Form 1040.

Mining

Cryptocurrencies are unique in that you can make money in other ways than simply buying and selling.

For example, someone who is involved in Mining crypto would usually report that on a Schedule C since this is viewed by the Government as a business and therefore an individual would be taxed as a sole proprietor. However, in certain situations, Mining may be considered a hobby and therefore reported on a Schedule 1.

In either situation, these Schedules are attached to your Form 1040 and filed with your Individual Taxes.

Staking

Another interesting aspect of crypto is when someone participates in Staking.

While Staking is complicated and deserves a lengthy explanation, in essence, it is the act of freezing your crypto for a period of time in order to stabilize the currency. During the process, the person Staking their crypto earns interest.

Much like a bank, this interest is viewed by the Government as a gain on a loan. Therefore, it is generally reported on Schedule B and, like the others, attached to your Form 1040.

Further Info

As with everything, these are not hard and fast rules. Crypto specifically can often be viewed as a hobby and then reported differently.

If you have other questions, feel free to contact us at Marcellus Tax Planning for a larger discussion on how your Cryptocurrencies affect your specific situation.