January 27, 2022 - Douglas Myser

Crypto taxation in United States. Since the Covid pandemic struck, and governments need for additional revenue to fund programs to fight the once in a generation health crisis, governments have been looking at Cryptocurrency with its high flying profits, as a way to find some of those expenses. In the United States, which was one of the first countries to publish administrative guidance on the tax treatment of cryptocurrency transactions. Notice 2014-21, 2014-16 IRB 938, explained how to apply the principles of U.S. taxation to cryptocurrency. In November 2016, the Treasury Inspector General for Tax Administration reported that the IRS should formulate more detailed crypto tax rules. IRS notice 2019-21, 2019-14 IRB-1, solved some remaining problems and explained the income tax treatment of hard forks and airdrops. Crypto taxation in United States.

The IRS guidance notes that crypto is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status in any jurisdiction. For U.S. tax purposes, cryptocurrency is treated as property, so it is not possible to generate foreign currency gains or losses with crypto. If a taxpayer receives crypto, that will result in gross income--that is, the taxpayer must include the fair market value of the crypto, measured in U.S. dollars, as of the date received. Accordingly, when a taxpayer exchanges crypto for property or legal currency, he may trigger a gain or loss on the transaction, which is calculated by subtracting the cost basis from the proceeds. We have spoken to many confused crypto investors who now realize that the U.S. Congress is about to tax crypto and they may be hit with taxes shortly. Time to call for Tax Resolution.

The gain or loss can be characterized as capital or ordinary. When a taxpayer invests in crypto it is treated as a capital asset and can be considered short, or long term gain in general, capital losses may offset only capital gains, not ordinary income. Long term capital gains benefit from favorable rates of 1. 15. or 20 percent.