The Awesome Crypto Tax FAQ for 2021

The awesome crypto Tax FAQ for 2021, this is it. Keep reading!

Who is this Crypto Tax FAQ for?

How is Cryptocurrency Taxed? What do I pay crypto taxes on? Are your trades taxable? If you’ve ever had these questions, this is the only Crypto Tax FAQ you’ll need.

What kind of treatment does virtual currency get, considering income taxes?

“Property” would be the correct way to tag an asset like virtual currency, according to the IRS. Taxation for cryptocurrency also works the same way as it does for properties. More explained below!

Will I recognize a gain or loss if I pay someone with virtual currency for providing me with a service?

Yes. If you exchange cryptocurrencies in order to give or receive a service, that is a capital gain/loss.

Will I recognize a gain or loss if I sell or exchange property (other than U.S. dollars) for virtual currency?

Yes. If you transfer property held as a capital asset in exchange for virtual currency, you will recognize a capital gain or loss. If you transfer property that is not a capital asset in exchange for virtual currency, you will recognize an ordinary gain or loss. For more information on gains and losses, see Publication 544, Sales and Other Dispositions of Assets

Do I have an income if I provide someone with a service and that person pays me with virtual currency?

Yes.

How do I calculate my income if I provide a service and receive payment in virtual currency?

The amount of income you must recognize is the fair market value of the virtual currency, in U.S. dollars, when received. In an on-chain transaction you receive the virtual currency with time specifics. Note the date and the time the transaction is recorded on the distributed ledger.

How do I Report Cryptocurrency Transactions on a Tax Return?

Depends on the transaction. The specific nature of the cryptocurrency transaction will determine how crypto income is reported on the tax return. Your crypto income is classified according to the nature of your cryptocurrency transactions.

Schedule D and 8949 are where you report capital gains like Cryptocurrency. Whereas, Schedule C self employment or Wages is where you report your employment income. Here is a simple guide with all the information you would need.

If I donate virtual currency to a charity, will I have to recognize income, gain, or loss?

No. You may donate virtual currency to a charitable organization described in Internal Revenue Code Section 170(c). You will not recognize income, gain, or loss from the donation.

How do I calculate my gain or loss when I sell virtual currency for real currency?

Your gain or loss will be the difference between your adjusted basis in the virtual currency and the amount you received in exchange for the virtual currency, which you should report on your Federal income tax return in U.S. dollars.

Do I have income when a soft fork of cryptocurrency I own occurs?

No. A soft fork occurs when a distributed ledger undergoes a protocol change that does not result in a diversion of the ledger and thus does not result in the creation of a new cryptocurrency. Because soft forks do not result in you receiving new cryptocurrency, you will be in the same position you were in prior to the soft fork, meaning that the soft fork will not result in any income to you.