In recent years, buying and selling in cryptocurrencies has been all the rage, but what does that mean for your tax return? With so many apps to buy and sell crypto, it can quickly become a complex task at tax time. So, what key things do you need to know when filing your tax return with crypto? We summarize some keep points from MarketWatch below:
Cryptocurrency is property according to the IRS
Meaning you must pay capital gains tax on the sale of that “property.” This process will require some due diligence on your part as you likely have multiple apps, exchanges, and mobile wallets you use to buy and sell crypto. The IRS says it is the user’s responsibility to configure how many gains and losses you made from your various apps. You likely will receive multiple Form 1099-Bs from each of the distinct platforms. Sound complicated? Don’t worry, there’s yet another app for that. Companies such as TokenTax, Koinly, and TaxBit offer assistance in conglomerating the tax liabilities of your various crypto wallets.
Crypto trading complicates tax liabilities
As you are often buying between one exchange and another, something that would never occur on the regular stock market, multiple taxable events are happening, often without both sides having all of the necessary information. Additionally, buying and selling one form of cryptocurrency with another could complicate the situation even further. It is up to the taxpayer to track any losses or gains made each time they make a trade.
Don’t forget your NFTs
Just as with cryptocurrencies, buying and selling NFTs creates capital gains and losses. And the creation of NFTs themselves is subject to income taxes.