Will a 1099-B form work best for reporting bitcoin purchases and sales?

Answer

How to report bitcoin transactions depends on how they are classified.  

Here is some TurboTax guidance to help you decide where to report transactions:

It depends whether your Bitcoin was income or property (a capital asset). Read below to figure out which category applies in your case, and then select the appropriate instructions.

Is my cryptocurrency income or property?

Cryptocurrency to pay for goods and services is taxed as income.  Suppose you are a hairstylist and one of your clients uses Bitcoin to pay for a haircut and several hair products. The IRS usually sees the haircut as a service, and the products as goods. In both cases, you’d need to report the Bitcoin payment as income.

If you leased a chair in your shop to another stylist who paid the rent in Bitcoin, you’d report the Bitcoin as income.

Cryptocurrency held as capital assets is taxed as intangible property. Similar to stocks and bonds, if you’ve bought and held cryptocurrency, any gain or loss from the sale or exchange of the asset is taxed as a capital gain or loss. If you buy and sell it within 12 months, it would be treated as a short-term capital gain. If you hold it for over 12 months, it would be taxed at the lower, long-term capital gain rate.

Cryptocurrency received as income—and then held and sold for profit—is taxed as both.

  • If you were paid in Bitcoin, you would first pay taxes on the earned income.
  • If you later sold the Bitcoin for a profit, you’d then pay the capital gains tax (short or long-term, depending on how long you held it).
  • Here’s where it gets tricky: If you were paid in Bitcoin, then paid for something else with that same Bitcoin, you’d have to track what the Bitcoin was worth when you received it versus what it was worth when you used it, in order to calculate whether you needed to report a gain or loss on the transaction. In this sense, the transaction parallels what would happen if you paid for a physical good, such as a computer, with stock rather than simply using cash.

 


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Yes. The IRS is taking cryptocurrency very seriously, to the extent that they took the cryptocurrency exchange Coinbase to court to obtain user records and now have a contract with digital forensics company Chainalysis to help track cryptocurrency transactions.

  • If you were paid in Bitcoin or other cryptocurrency, you should report your earnings as income.
  • If you hold Bitcoins or other cryptocurrencies as a capital asset, you must treat them as property for tax purposes. If you sold them for profit, you must report earnings regardless of whether you received a 1099-B.

Keep in mind: If you've already filed a return that reported a cryptocurrency, make sure that you categorized it correctly. If you need to make a change, check how to amend a return and how to report cryptocurrencies.


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