If you have purchased, owned, sold, gifted, made purchases with, or used cryptocurrency in business transactions, there are certain tax issues you need to know about. Unfortunately, there are some unanswered questions and little specific guidance offered by the IRS other than in Notice 2014-21 and Revenue Ruling 2019-24. This article includes the guidance from the Notice as well as general tax principles that apply.
One of the big issues of cryptocurrency is how it is treated for tax purposes. The IRS says that it is property, so that every time it is traded, sold, or used as money in a transaction, it is treated much the same way as a stock transaction would be, meaning the gain or loss over the amount of its original purchase cost must be determined and reported on the owner’s income tax return. That treatment applies for each transaction every time cryptocurrency is sold or used as money in a transaction, resulting in a major bookkeeping task for those that use cryptocurrency frequently.
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