Top 4 Tips When Filing Cryptocurrency Taxes

One of the most often heard questions is whether or not bitcoin usage can be taxed. Over in the United States, the answer to that question is “yes”, and filing taxes can be quite complicated. Luckily, there are some helpful tools to make this process a lot faster. However, for those individuals who want to do things by hand, there are some things to keep in mind.

4. Cryptocurrency Trading

Although some people would prefer to have bitcoin trading not part of filing taxes, there is no way to circumvent this requirement. According to the IRS guidelines, taxpayers need to report the fair market value of their BTC holdings on the date of receiving the currency. 

Alternative cryptocurrencies are a different story, though. Do not be mistaken into thinking altcoins are exempt from filing taxes, assuming they are convertible. Any altcoin traded against the US Dollar falls into this category. Moreover, any currency that can be used to buy tangible products or services has tax consequences as well. Virtually any currency that is listed on any cryptocurrency exchange will be taxed one way or another.

3. Online Commerce

A lot of cryptocurrency users make use of bitcoin and altcoins for e-commerce purposes. The question becomes whether or not these transactions are taxable according to the IRS guidelines. There is a lot of leeway in this regard, as the guidelines are rather complicated. However, no one should use large cryptocurrency-based purchases to evade taxes either. It is best to check with a local accountant and ask for their opinion, as there is no clear rule stating what to do. 

One thing is certain though, if you have made gains in between purchasing the cryptocurrencies and spending them, you do owe uncle Sam his cut. However, calculating the cost basis for each transaction can be cumbersome and requires the consultation of a certified tax professional for exact answers.

2. Gifts

There is a big difference between “gifting” bitcoin and “tipping” it. Any cryptocurrency tip may be classified as taxable under the gift guidelines, which is good news since the gift taxation guideline is a lot more favorable than the one for tips. According to the IRS, US taxpayers are exempt from paying taxes on most gifts, as long as the total amount remains below US$14,000. The recipient of gifts is also exempt from taxes, as long as there is no capital gain or loss on the sale. Tips, on the other hand, are always taxable once the funds are converted to fiat currency.

1. Stolen or Lost Funds

One of the biggest problems to deal with when it comes to filing taxes is how one should label stolen or lost cryptocurrencies. Unfortunately, these events are not exempt from taxation guidelines, and may even lead to unfavorable tax treatment in the long run. It doesn’t matter if the funds are lost due to a user error or a third-party service stealing money, the end user will be held responsible to report the income.

You can write off the loss on your federal returns, but IRS would most likely want proof if the amount deducted is large. Also, depending on if the cryptocurrency was lost or stolen, the taxpayer will have different options as to how to write off the loss.

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  • Sans Souci

    “Top 4 Tips When Filing Cryptocurrency Taxes”

    1. Don’t have a US passport.

    2. Don’t.

    • moxtr

      May I ask why not?

      • Sans Souci

        A state cannot tax something they do not recognise.

  • I heard the IRS is very disappointed in the amount of people that actually claimed bitcoin. I’m not a huge fan of taxes but try to pay my fair share based on legal requirements, and the simple fact that I’d rather not have the additional problems of tax evasion as one more thing I have to worry about. It would however be nice if the powers that be would come up with a clear and concise written tax code on dealing with cryptocurrencies. I recently asked my accountant about it, and she was completely lost and didn’t even know where to begin with it all. I didn’t really make much last year, but have a funny feeling if the year carries on the way it’s starting, by the end of the year I may have a legitimate concern about getting this handled properly.

    With the current subpoenas of Coinbase by the IRS, I’m sure it’s just a matter of time before they contact any and all of the other U.S. based exchanges. People are starting to make some real money in this industry, if they expect taxes from people, they need to make the law clear on how taxes should be handled.

  • StoneAge

    All you have to do, is know how to handle the IRS (CRA Canada) and you MAY never have to pay any income taxes again – perhaps. Bitcoin itself is NOT taxable. It cannot be as they won’t let you pay your taxes with it. it is ONLY taxable (maybe) as capital gains (losses) when exchanged into FIAT FED notes. Remember – a FED note is NOT a US dollar. It takes about 20 FED notes to buy a US dollar these days. A US dollar is one ounce of .999 fine silver. Or a US mint official Silver Liberty which contains one ounce of .999 silver.

    Truthfully a US citizen is only required to pay what they owe legally. And on what they call income – yet they never define… income. Plug coming….

    If you want a really good advice about how and IF you need to file – contact my friend David at

    [email protected]
    Get his Income tax 2017 report. I don’t get anything from this. Only the satisfaction of maybe reaching one or two people. First to get one’s head wrapped around is that it is the law that you have to do this. It’s not and David will explain why along with several other reasons why we need to say NO to these thugs all over the planet. The tax regimes are nothing but collection agents for the central banking currencies. That way they can say the inflation rate is lower than it actually is, perpetuating the lie that is FIAT currency.

    OK Rant done. Do get hold of David tho…