The IRS now asks whether you sold, received, or exchanged any virtual currency on the first page of the 1040. And the IRS has sent letters to people who haven’t reported income from crypto transactions.
Here are the tax rules:
Cryptocurrency is property, so it’s taxed when you have a realizable event. This means:
o You sold it for U.S. dollars
o You exchanged it for another cryptocurrency
o You exchanged it for goods/services
Thus, if you buy crypto and the value goes up, but you don’t sell or exchange it, you don’t owe any tax. But if you do sell it or exchange it, you’ll have a capital gain or loss.
o What you received, minus what you paid, is your gain or loss
o Thus, if you paid $30,000 and sell for $35,000 you’ve got a $5,000 capital gain
o That gets reported on IRS Form 8949
Now if you mine cryptocurrency, or receive it as payment for doing a job, that’s different.
o The value of the cryptocurrency you receive in that case would be reported as self-employment income. It would be taxed when you receive it
o If the value of the crypto you received later changes and you sell/exchange it, you would then have a capital gain or loss
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