CRYPTO TAX GUIDE in U.S.A
(Last update: August of 2020)
2020 Crypto Tax Guide / Crypto and bitcoin taxes in the US
Did you sell, use, or convert crypto?
If so, you may owe taxes if you’re a US taxpayer.
Here’s a look at what that could mean, the steps you may have to take, what forms you’ll need, and how gains and losses might affect your taxes.
First, let’s get this out of the way...
USFCX doesn’t provide tax advice. We put this guide together for informational purposes only and it shouldn’t be considered tax advice or an individualized recommendation. Please consult a tax-planning professional regarding your personal tax circumstances.
The million-dollar crypto question
1.1 Do I have to pay crypto taxes?
At USFCX, we see crypto as the foundation for tomorrow’s open financial system — but it’s also a part of today’s traditional one. To answer the many questions on crypto and taxes, the IRS has issued crypto tax guidance.
In previous tax seasons, we received a lot of questions from crypto newbies and experienced customers alike. We get it — paying bitcoin taxes and other crypto taxes can be confusing. While we can’t give tax advice, we want to make crypto easier to buy, sell, and use. This guide is our way of helping you better understand your 2019 crypto tax obligations.
There’s a lot of conflicting content out there, but make no mistake: you are required to report gains and losses on each cryptocurrency transaction or when you earn cryptocurrency, even if there is no gain or loss or the gain or loss is not material. The IRS holds you responsible for reporting all income and transactions whether you receive a tax form from a crypto exchange or not. Exchanges like USFCX provide transaction history to every customer, but only customers meeting certain mandated thresholds will also receive an IRS Form 1099-K.
One quick note if you’re a non-US investor: crypto taxes are treated differently country-to-country. This guide only covers the US. Unless you happen to have some US tax obligations (this is rare) be sure to consult your local country tax advisor to confirm your tax reporting obligations at your home jurisdiction.
In a nutshell...
All crypto sells, conversions, payments, donations, and earned income are reportable by US taxpayers
The reason that buying and selling crypto is taxable is because the IRS identifies crypto as property, not currency. As a result, tax rules that apply to property (but not real estate tax rules) transactions, like selling collectible coins or vintage cars that can appreciate in value, also apply to bitcoin, ethereum, and other cryptocurrencies.
To no one’s surprise, the IRS isn’t kidding around. Failure to report income, including income from the sale of crypto, could result in interest on unpaid taxes and penalties. Please consult with a tax-planning professional regarding your individual reporting obligations.
With all that in mind, here’s our list of five steps you can take to help you understand if you may need to pay crypto taxes, how to determine the amount, and what forms you may need.
Let’s dive in.
Steps to take
2.1 Determine if you owe crypto taxes
Even if you’re in the “Just HODL it” camp, it’s worth evaluating your crypto transactions to determine if you may owe taxes.
In short, a lot. Here are some examples of taxable crypto events:
Selling crypto for cash
In other words, realizing the gain on your crypto property (don’t forget losses could help with your tax bill)
Paying for goods or services
For example, using bitcoin to buy a pizza
Buying one crypto with another crypto
I.e. “converting” one crypto into another. Using bitcoin to buy Ethereum is considered a disposition of the bitcoin, for example
Receiving mined crypto
Including Bitcoin, Ethereum classic, and more
So, you have crypto transactions to report?
First, you’ll need a single view of all your crypto-related transactions, each of which should be reported on your tax return.
Charitable contributions and gifts of crypto and tax implications
Recipient of a gift: If you are lucky enough to receive crypto as a gift you are not likely to have a taxable event until you sell the crypto. When you sell the crypto, your cost basis will be the same cost as the person who gifted it to you.
Person who gives the gift: If you give a gift of crypto, you can give up to $15,000 per recipient per year without paying taxes. If your gift exceeds $15,000 per recipient, you are required to file a gift tax return.
Charitable donations: If you give crypto directly to a 501 (C)(3) charitable organization, you:
Can claim a charitable deduction equal to the fair market value of the donated crypto.
May see a larger tax deduction since you will receive the full value of your charitable contribution instead of paying taxes on any gains if you sell the cryptocurrency and in turn donate the money.
USFCX customers can generate reports with all buys, sells, sends, and receives of all crypto associated with their USFCX accounts. These reports show what we think your cost basis could be for all purchases and proceeds for all sales, inclusive of USFCX fees. Please remember: these reports only detail transactions associated with your USFCX account, and will not be correct if you moved crypto from other wallets or exchanges because USFCX doesn’t have information about your holdings prior to them moving onto the USFCX platform. If you used other exchanges, you’ll need to download separate reports from them and reconcile.
Download your USFCX account report
For all transactions, you need the cost basis of each transaction — the amount in dollars that you spent originally to buy it — and the amount in dollars it was worth when you sold it. This will be used to calculate your gains and losses.
Quick note on proceeds: when you see them on a 1099-K, the amount can look bigger than you expected since they take into account all the transactions you made in a year.
2.2 Calculate gains and losses
Now that you have a comprehensive view of your activity, you’ll need to figure out whether you incurred gains or losses on each transaction. This means you’ll need to review each transaction and determine the cost basis to see if it’s a loss or a gain.
(To be upgraded continuously)