Bitcoin has been called the future of money. It has created significant returns for some and continues to tempt more and more people to get into cryptocurrency. However, taxes are often overlooked. Almost every cryptocurrency transaction – mining, spending, or trading – can be a tax event for US tax purposes.

Although cryptocurrencies are digital currency, the US treats them as an asset for tax purposes. Therefore, selling or even spending coins can have capital gain implications.

To make matters more complicated for crypto taxation, digital exchanges are not regulated. That means they often do not issue a 1099 form, nor do they calculate gains or cost basis for you. Detailed record-keeping is, therefore, a must.

Since digital currencies are still fairly new, many tax accountants are not yet knowledgeable about cryptocurrency taxation.

At Global Expat Advisors, we are very familiar with crypto tax, as our clients include bitcoin miners and high-volume traders. We can help calculate ordinary income and capital gains from Bitcoin and reflect those properly in your US tax returns.

Our Cryptocurrency Services

Bitcoin and other digital currencies generate enormous returns but are quite volatile. Reducing crypto taxes requires proper tax planning.

As needed, we will draft tax opinion letters on the exchange of currencies. We also offer tax planning and structuring considerations for clients that mine or receive Bitcoin or cryptocurrency as compensation.

Cryptocurrency tax implications in the US

Mining cryptocurrency

… is taxable income, although the fair market value is not always easy to calculate as it depends on the day it was mined.

Receiving payments in cryptocurrency

… in exchange for products or services or as salary is treated as ordinary income.

Spending cryptocurrency

… is a tax event and can realize capital gains, which can be short term or long term gains. For example, you bought 1 BTC for $50. If that Bitcoin is now worth $100 and you buy a $100 gift card, you’ve made $50 of taxable gains.

Converting cryptocurrency

… into USD or another currency can realize a gain and is a tax event.

Trading cryptocurrency

… can produce capital gains or losses, which may be used to offset gains and reduce tax.

Initial Coin Offerings (ICOs)

… can produce taxable income that needs to be reported unless structured otherwise.

Buying crypto

… on one exchange and selling on another exchange results in splitting the cost basis.

Basically, whenever you sell crypto on an exchange, to another person, or to buy goods or services, it is a tax event for US tax purposes. The same applies in many other countries.

All US citizens and residents have to pay tax on worldwide income, including income from cryptocurrency. In addition, your host country or country of business may impose different tax rules.

The IRS suspects that most crypto users evade taxes by not reporting transactions on their tax returns. Given the transparency of Blockchain technology, however, it is only a matter of time until audits catch up with the increased use of digital currencies.