The value of cryptocurrency is equivalent to the real currency, and sometimes it acts as a substitute for real currency. An example of convertible cryptocurrency is Bitcoin, and it can be used for trade purposes or exchanged into different currencies such as Euro, Pound, Dollar, etc.
In recent years, the cryptocurrency and its trade have become very popular. Some employees are paid in the cryptocurrency, various retailers have started accepting it as payment, while many people hold the cryptocurrency as an asset. Recently, the Internal Revenue Service (IRS) has guided reporting the sale of cryptocurrency.
Sale & Exchange of Cyrptocurrency
The sale and the exchange of cryptocurrency to other currencies, its usage to pay for certain purchases or services, or stocking it as an investment, generally have some tax implications. For example, in case of any taxable event (trade, sale, or disposing of your cryptocurrency), you firstly need to calculate your resulting cryptocurrency gains or losses. If you don’t know which of your crypto transactions qualify as taxable, you must look at the crypto tax guide beforehand.
If employers pay the employees in cryptocurrency, they need to report the employee earnings to the Internal Revenue Service (IRS) on W-2 forms. Even if you have invested in Ethereum or the Bitcoin, the general method of calculating the gains and losses and reporting the sale of cryptocurrency is the same regardless of the type of cryptocurrency. There is no difference between various cryptocurrencies in the IRS; they are all the same and require the same methodology for reporting.
Wages paid in cryptocurrency,i.e., Bitcoin,have the same worth as dollar wages. So, the employees should report their W-2 wages in dollars. Individuals who are self-employed and have cryptocurrency gains or losses from sales transactions also need to convert their e-currency to dollars on receiving and reporting the figures on their tax returns.
The miners of cryptocurrency need to report the receipt of the virtual currency as income. Some people do the cryptocurrency mining via computer resources to validate the transactions. According to the IRS, when cryptocurrency is successfully mined, and the person has earned from that in any form of cryptocurrency, they must include it in their gross income after determining the market value that specific amount of cryptocurrency.
The cryptocurrency that you earned should be reported on Schedule 1 “Additional Income and Adjustments to Income.” Simultaneously, if you have received cryptocurrency or Bitcoin as an income it needs to be reported on Schedule C.
According to the IRS’s recent guidelines, the reporting of the sales of cryptocurrency is similar to the stock sales. The sale reporting of cryptocurrency may require strenuous effort, but traders are encouraged to report their sales accurately because the trade of cryptocurrency isn’t as private as it seems.
For example, Bitcoin’s blockchain has a record of every sale or transaction that has been done to date. The only reason why your transactions are private is because of the owner’s wallet isn’t public.