Let’s go over a few scenarios to make this clearer.
Bought and HODL’d
The tax situation is straightforward if you bought crypto and decided to HODL. The IRS does not require you to report your crypto purchases on your tax return if you haven't sold or otherwise disposed of them. Like buying and holding onto shares of stock, the tax event occurs when you sell.
Earned crypto as payment
If you receive crypto as payment for goods or services, it's a different story. The IRS requires you to report this as income, and the taxable amount is the value of the crypto at the time you received it. So, if you're a freelance graphic designer and a client pays you in Bitcoin, you need to report the value of that Bitcoin as income.
Received crypto from mining and airdrops
The IRS will consider mined crypto as taxable income based on its value in the market when you receive it. Similarly, receiving cryptocurrency from an airdrop also counts as income and must be reported.
Received crypto from trading and swapping
If you exchange one type of cryptocurrency for another - say, Bitcoin for Ethereum - the IRS views this as a taxable event. Here, the difference in price between the two at the time of the trade would need to be reported as a capital gain or loss.
Earned interest on crypto
If you earn interest on your crypto by lending it out, this is considered taxable income. The amount you report should be the amount of interest earned when it was received. Often crypto lending platforms will have a tax portal where you can find the numbers.
If you receive new coins from a hard fork, this is a taxable event. The new coins are considered income, with the amount to report being the value of the new coins at the time they are received.
Keep track of your tax obligations with Bitwave
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Disclaimer: The information provided in this blog post is for general informational purposes only and should not be construed as tax, accounting, or financial advice. The content is not intended to address the specific needs of any individual or organization, and readers are encouraged to consult with a qualified tax, accounting, or financial professional before making any decisions based on the information provided. The author and the publisher of this blog post disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use or application of any of the contents herein.