Trading cryptocurrency? You must report these transactions to the IRS
As tax season approaches, investors who've dabbled in buying or trading cryptocurrency may have more IRS forms to fill out than usual this year.
Many, but not all, transactions made in bitcoin, ethereum and other digital currencies must be reported to the federal government. That's leaving some crypto first-timers confused about how to prep their taxes.
Here's what you need to know about how cryptocurrency activity is taxed, and how to report it, according to Shehan Chandrasekera, CPA and head of tax strategy for CoinTracker, a cryptocurrency portfolio tracker and tax calculator.
First off, if you used regular U.S. dollars to purchase assets in cryptocurrency that have remained in an exchange or cryptocurrency wallet, rest easy since you do not have a tax liability and no reporting is required, Chandrasekera told CBS News Streaming.
But the Internal Revenue Service does require U.S. residents to report the following crypto events, which are considered taxable:
- You hold assets in cryptocurrency and used crypto to buy a good or service
- You sold or cashed your crypto assets for government-issued currency
- You traded one cryptocurrency for another
- Your employer paid you in cryptocurrency
- Your were given free tokens through an airdrop
"If you had any of these five situations, you would have a filing obligation," Chandrasekera said.
Millions more Americans this year will be required to report this kind of activity to the IRS. All told, 46 million U.S. residents now own bitcoin — and that number is increasing daily, according to Chandrasekera.
Of course, just because you have to report an event to the IRS doesn't mean you will necessarily owe money in taxes. Only transactions resulting in gains, versus losses, may be taxed.
More Americans are entering the crypto world every day as new exchanges come to market. Crypto trading platforms made big plays for new users at this year's Super Bowl, spending millions on 30-second ads that companies like FTX Trading and Crypto.com hope will bring in new customers.
FTX.com even gave away bitcoin to some viewers — gifts the prizewinners will be required to report on their tax forms this year.