As cryptocurrency continues to grow in popularity, understanding its tax implications is more important than ever. Nearly 40% of Americans own some form of crypto, and whether you’re an individual investor, business owner, or tax professional, staying informed about crypto-related tax rules is essential. The IRS is increasingly focused on the taxation of digital assets, and failing to comply can lead to costly penalties.

How Cryptocurrency is Taxed

The IRS treats crypto as property, not currency. This means that gains or losses from selling, trading, or using crypto are generally subject to capital gains tax, much like stocks or real estate. Short-term gains (from assets held less than a year) are taxed at ordinary income rates, while long-term gains are taxed at a reduced rate.

Capital Gains and Losses

Crypto’s value can be highly volatile, so you may experience significant gains or losses. If you sell or exchange crypto for a profit, that gain is taxable. On the other hand, if you sell crypto at a loss, you might be able to offset other capital gains and reduce your taxable income.

Mining and Staking

If you mine or stake cryptocurrency, the IRS considers this taxable income. This applies whether you’re an individual or running a business. Staking rewards, a newer trend in crypto, are also taxable when you receive them.

Paying Taxes with Crypto

While it might seem logical to pay taxes directly with crypto, the IRS doesn’t accept digital currency for tax payments. You’ll need to convert your crypto into U.S. dollars to settle any tax liabilities. This raises questions about how to value your crypto and any potential capital gains when using it for purchases or payments.

Recordkeeping and Reporting

Keeping accurate records of your crypto transactions is crucial. The IRS requires taxpayers to report each transaction, including the date of purchase, date of sale, the amount of crypto involved, and its value in US dollars at the time. With numerous exchanges and platforms available, maintaining good records is essential when it comes to audits or penalties.

Staying Updated on Regulations

The IRS is increasing efforts to enforce tax compliance in the crypto world, and new regulations are likely to evolve. Staying informed about these changes can help you make smarter financial decisions and avoid potential tax problems.

IRS Problems?

Tax problems can quickly become legal problems. If you need assistance with your crypto taxes or are facing challenges with the IRS, contact Kent Brown at Strong & Hanni at (801) 532-7080 or email kbrown@strongandhanni.com  For more information, visit https://strongandhanni.com/attorneys/attorney-kent-brown/