US News

How US Tax Regulations Changed for Crypto

Regulating cryptocurrency, a virtual currency, and asset, is a growing topic with the Internal Revenue Service (IRS) since 2014. In 2021, IRS issued new cryptocurrency reporting guidance, Notice 2014-21, to help restrict tax evasion and inform the treatment of virtual currency. Trading, selling, and purchasing cryptocurrencies have tax consequences which you must report on your federal income tax return. One change to tax regulations was an inclusion requiring transfers $10,000 and higher to report to Internal Revenue Service. We will further discuss essential tax regulations you should be aware of, which focuses tax consequences of cryptocurrency transactions. 

How Do IRS Treat Crypto Transactions?

IRS considers cryptocurrency as property and applies the general tax principles in treating it as a property transaction. Therefore, if you received a payment for a product or service, you must report the gross income at its fair market value. You can learn more about accounting for miscellaneous income in Publication 525 on taxable and nontaxable income. Suppose you sold bitcoin and received a gain from the sale report it as taxable income on your federal income tax return.

Changes Made to Tax Regulations

Changes to tax regulations are in a list of the most frequently asked questions for guidance. Because cryptocurrency functionality can be a medium of exchange, account unit, or stored value, it is a convertible digital currency. Its operation is similar to the US dollar or coin but without the legal, jurisdictional currency classification. Bitcoin and Ethereum are examples of convertible digital currencies and cryptocurrency available on all exchanges. When purchasing cryptocurrencies and NFTs (non-fungible tokens) on sites, IRS requires reporting for digital currency transactions. 

When reporting cryptocurrencies, it must be in US dollars at the fair market value of the receipt date of payment for a transaction. Bitcoin, for example, is on the exchange list and must be accounted for differently. Determine the fair market value by converting the cryptocurrency into US dollars at the current exchange rate. 

Anytime you exchange cryptocurrency for property, there will be a gain or loss. Deduct the property’s fair market value from your adjusted basis of the cryptocurrency to determine gains or losses. If the fair market value exceeds the adjusted basis, you will recognize it as a gain and a loss if the adjusted basis is more than the fair market value. You can learn more pertaining to taxable gains and losses in Publication 544. 

IRS issued guidance to taxpayers who are in the mining business of cryptocurrencies. They must realize the crypto the day of receipt at fair market value and include it in gross income. A taxpayer who mines cryptos as a trade or to conduct business and not work as an employee will need to report as self-employed with net earnings. You may have a tax liability for self-employment tax. You can learn more on the subject matter in Publication 334, Chapter 10. Other changes include guidance on receiving cryptocurrency for independent contractor services and receiving payment of $600 and above for goods and services paid with digital currencies. 

Support Conservative Daily News with a small donation via Paypal or credit card that will go towards supporting the news and commentary you've come to appreciate.

Related Articles

Back to top button