Cryptocurrencies took the world by storm during the last couple of years. Although they have been around the block for a decade, it’s the year of 2016 that gave an exponential bullish push to the cryptocurrency market. There have been cases of several people who became filthy rich by investing in this new financial asset class. By now, most people around the world have come to know about this market, but only a few are aware of the process of filing taxes and accounting reporting for cryptocurrencies, Here’s a look at some of the important things one should know about cryptocurrency taxes and accounting reporting:
– Cryptocurrency holdings are non-taxable until they’re sold or converted into fiat currencies. Whenever you buy or pay for something using cryptocurrencies, they come under the taxable spectrum.
– Maintain the proper set of information related to your cryptocurrency transactions. You can obtain this data from either the blockchain or from the wallet provider and cryptocurrency exchanges.
– Any income generated through trading cryptocurrencies must be reported according to Schedule D, a 1040 attachment.
– If you’ve held a cryptocurrency for less than a year, it comes under the short-term capital gain category. On the other hand, if you’ve held a cryptocurrency longer than a year, it’s labeled as a long-term capital gain.
– Taxpayers are required to report the fair market value of the appropriate cryptocurrency. Fair market value is basically the price of that cryptocurrency on the date of its exchange to fiat currency.
– In case of your cryptocurrency account being held abroad, the account’s value must be reported to the US Treasury, through FinCen form 114 along with reporting to IRS using form 8938.
If you’re having difficulty with the cryptocurrency taxes and accounting reporting, consult a financial professional and seek their advice to avoid any mishaps.