Tomorrow is April 17. Have you filed your taxes yet? Because of 2017’s crypto boom, more people are having to consider if and how to declare their cryptocurrency during this tax season. With this in mind, Blind recently ran a survey to find out how many of its users plan on reporting any cryptocurrency profits.
From April 5 to 12, Blind’s users were asked: If you earned money from cryptocurrency in 2017, have you or will you be reporting the earnings on your taxes this year? More than 2,600 users responded and an overall 46% percent replied NO.
If you don’t declare your profits, will the IRS find out? Maybe not, but it seems like the IRS is taking cryptocurrency seriously. In November 2017, the IRS served Coinbase a summons to seek transaction records on more than 10,000 of its customers. Last month, the IRS also issued a warning reminding cryptocurrency investors that tax evasion is subject to a prison term of up to five years and a fine of up to $250,000.
If you do find yourself reporting cryptocurrency this year, here are a few points to keep in mind:
1. According to a 2014 IRS guideline, virtual currency is treated as property. This means that taxes are owed only when you sell the currency and realize a profit.
2. Buying a service or product with cryptocurrency is considered a sale of the cryptocurrency. Any gains you make from these transactions are taxable.
3. Exchanging one cryptocurrency for another is taxable.
4. A salary paid in cryptocurrency will be valued in US dollars, based on the fair market value at the time your salary was received.
5. Donations made with cryptocurrency are tax deductible. If you held the donated cryptocurrency for longer than a year, you can deduct the full fair market value of the donation, up to 30% of your adjusted gross income, without having to report a taxable gain.
For more details about reporting cryptocurrency to the IRS, speak with an accountant or tax professional.