Resources: Guides
Claiming Cryptocurrency on your Tax Return
When you hear the term Cryptocurrency, you probably think of Bitcoin. That’s because Bitcoin was the first ever established cryptocurrency, dating back to 2009. Bitcoin is still the most well-known crypto, but estimates indicate that there are over 20,000 different types of cryptocurrencies currently in existence. There are so many different cryptocurrencies, and coin-types that it can be hard to keep track. This is why the IRS requires taxpayers to maintain sufficient records to prove what they are claiming on their federal income tax returns.
This guide will focus on how a taxpayer can accurately report their cryptocurrency transactions within MFT’s free tax prep software, TaxSlayer.
What is Cryptocurrency?
Cryptocurrency are also known as digital assets. The tax definition of a digital asset is any digital representation of value recorded on a cryptographically secured, distributed ledger (blockchain) or similar technology (Infrastructure Investment and Jobs Act).
- For U.S. tax purposes, digital assets are considered property, not currency.
- A digital asset is stored electronically and can be bought, sold, owned, transferred or traded.
- Examples:
- Convertible virtual currencies and cryptocurrencies such as Bitcoin
- Stablecoins
- Non fungible tokens (NFTs) “collectibles”
How does the IRS treat Crypto?
The IRS treats cryptocurrency similarly to stocks and real property. This means that any cryptocurrency gains are taxable upon a trade, sale, or when used to buy goods/services.
What does maintaining sufficient records mean?
Sufficient records related to your digital asset transactions include:
- Your purchase, receipt, sale, exchange or any other disposition of the digital assets
- The fair market value in US dollars of all digital assets
How can I access my transactions?
This will depend on which platform you’ve chosen. Most individuals will choose a traditional broker to manage their crypto portfolio, this broker may be the same firm or financial asset manager that handles your stocks, bonds, etc. You can simply login and access your brokerage account where you will be able to see your purchases, sales, and other pertinent information regarding your transaction history.
When will my broker send me my tax forms?
Your broker will issue your 1099-B or 1099-MISC to you and they will send a copy to the IRS by January 31st. The IRS notes that your crypto broker may send a substitute form in place of the 1099-B but that the substitute form will have exactly the same information as a 1099-B. Depending on the amount of taxable transactions you may have within a particular tax year, it may arrive as a large packet rather than a single form.
Will a VITA site be able to assist with my crypto?
Unfortunately, Cryptocurrency transactions are out of scope for VITA. However, you can still report cryptocurrency transactions and file free of cost by using our self-filing option (accessible by selecting the File on my own option on our homepage).
How do I report crypto transactions using MyFreeTaxes self-filing software?
You can report cryptocurrency transactions using MyFreeTaxes’ self-filing option. We connect users to one of two self-preparation software options (Cash App Taxes or TaxSlayer) based on their income.
Our Crypto Guide below provides step-by-step instructions for reporting crypto in TaxSlayer and can also be used as a reference if you are directed to file through Cash App Taxes on our site (Spanish version coming soon).