Despite some initial uncertainty among the investment community, cryptocurrency investors have come to terms with the fact that they are subject to federal taxes. The Internal Revenue Service (“IRS”) requires people who use and invest cryptocurrencies like Bitcoin, Ether, Litecoin, and Ripple, to report sales and exchanges on their tax returns. But exactly when is IRS oversight triggered?

If you bought or sold cryptocurrency in 2017, you may be a bit concerned about taxes this year. The skilled cryptocurrency accountants at Happy Tax keep up to date on the rules and regulations the IRS has developed regarding Bitcoin and other virtual currencies. Rather than go at it alone, let the specially-trained cryptocurrency accountants at Happy Tax guide you through the upcoming tax season.

What Triggers Taxes in Cryptocurrency Transactions?
Cryptocurrencies have been defined as property under the Internal Revenue Code, and virtual currency investments are treated as capital assets just like other types of valuable property. So far, buying Bitcoin or any other digital currency is not a taxable event in and of itself. Instead, the IRS taxes cryptocurrencies when they are sold. At the time of sale, the investor realizes his or her capital gains (or losses) on the virtual currency property. While the exact rate at which your cryptocurrency investments are taxed vary based on criteria like how much other income you’ve made that year and how long you held the asset, the sale of a virtual currency is the event that triggers IRS oversight.

What Counts as a “Sale” of Virtual Currency for Tax Purposes?
You’ve sold your virtual currencies whenever you exchange them for any other currency, either traditionally-minted government-backed money or a different cryptocurrency. Many investors once believed that exchanging one cryptocurrency for another qualifies as a like-kind exchange exempted from taxation under Section 1031 of the Internal Revenue Code. However, this is not the case. Exchanging your Bitcoin for Ripple or swapping your Ether for Bitcoin Cash is a taxable event just like cashing out any other investment.

Cryptocurrency Accountants Can Help Limit Your Tax Exposure
Cryptocurrencies are taxed to a greater degree than many investors initially believed. As a result, protecting your investment involves limiting your tax exposure. The Certified Public Accountants (“CPAs”) at Happy Tax boast the same professional credentials as any other licensed CPA, but they also have specialized training on the latest rules and regulations that impact cryptocurrency investments. If you’ve participated in the cryptocurrency craze, be sure to consult with the talented cryptocurrency accountants at Happy Tax before filing your returns this year.

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