Crypto

[cpeoples21]

Exactly what forms and what transactions must be reported? Is all profit taxable?

[AdamNe]

Hello @cpeoples21 !

Thanks for the question. I can give you some general info, and if you have more specific questions please go ahead and respond here. 

In general, the IRS considers cryptocurrency to be property, and it is treated very similar to stock or other collectibles. 

So, any time you exchange or sell cryptocurrency, you have a taxable event. This is true regardless of whether you actually receive dollars in the exchange. For example, if you exchange one cryptocurrency for another, you have a taxable exchange. Or, if you purchase something with cryptocurrency, that is also a taxable exchange. 

Simply purchasing cryptocurrency is not a taxable event, however the IRS does require that you check the box on the first page of Form 1040 indicating that you purchased, sold or exchanged cryptocurrency during the year. 

All of your taxable cryptocurrency exchanges and sales are reported on Schedule D and Form 8949. 

One exception is if you are mining cryptocurrency. The IRS considers mining to be a business, and you report your mining activity on Schedule C for Self-Employed individuals. 

I hope this helps you! Let me know if you have something further I can address.

Best,

Adam, EA

TurboTax Live Expert

[KochuK]

Hi cpeoples21,

Thanks for the question. In short, all sales, conversion activities are reportable for gain/loss, no matter if you receive any tax form. The economic substance dictates tax reporting.

Crypto is part of Virtual Currency.

Quote

In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.

Unquote

https://www.irs.gov/pub/irs-drop/n-14-21.pdf

It is treated as property. When you sell virtual currency, you must recognize any capital gain or loss on the sale, subject to any limitations on the deductibility of capital losses.

Below IRS article elaborate on all reporting circumstances.

Frequently Asked Questions on Virtual Currency Transactions.

https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-curren...

In general, the only transaction not reportable is when you purchase virtual currency with real currency, and still holding the virtual currency at end of year. Once sold, or used for service or converted into another virtual currencies, it becomes reportable.

I hope this helps.