Maybe you got into crypto trading last year. Maybe you’re a hodler (someone who believes one should buy Bitcoin or cryptocurrency and hold onto it while it appreciates) whose been going down the rabbit hole since 2011 and received a chunk of Bitcoin Cash. Maybe your employer decided to start paying you in Ether. In any of these scenarios and more, you need to pay taxes on your 2017 crypto transactions.
“Every single exchange of virtual currency is a taxable event — whether to buy a cup of coffee or exchange one type of virtual currency for another. Not just transactions where it’s sold for fiat,” says Tyson Cross, tax attorney with Cross Law Group, in the latest episode of my podcast Unchained (on Google Play, iTunes, iHeartRadio, Stitcher or TuneIn Radio).
“Cryptocurrencies are fungible in ways stocks are not,” says Jason Tyra of Jason M. Tyra CPA. “There are a lot of things you can do with them, especially with Ether now — the ability to carry out smart contracts — that you can’t do that with securities. There are a lot more things that could generate tax consequences than with a generic share of stock.”
And don’t think you can fly under the radar. “The IRS is concerned people are using cryptocurrency for tax evasion or at the very least have taxable income they’re not reporting from cryptocurrency,” says Cross. This is what prompted the Internal Revenue Service to issue a summons on Coinbase asking for all customer records, including chat logs, for a few years. However, during the podcast both Tyra and Cross revealed something that casts into question the IRS’s justification for such a request — tune in to find out what it is.
After a legal battle, Coinbase managed to restrict the request to users who had transacted in amounts exceeding $14,000, but regardless, the IRS had put crypto users on notice: Pay taxes on your crypto activity.
Although he didn’t get to say so in the podcast, Cross emailed later to add, “Coinbase users who might be affected by the IRS summons should consult with a tax advisor to determine whether they are at risk of civil and criminal penalties due to unreported income.”