The IRS had issued IRS Notice 2014-21, as guidance for individuals and businesses on the tax treatment of transactions using virtual currencies. According to the notice, the following transactions like the sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability.
Indeed, some virtual currency owners who did not file their virtual currency transactions, might receive IRS educational letters 6173, 6174, or 6174-A advising them to amend their tax returns. So how to file each of the virtual currency transactions?
- When you sell virtual currency, you must recognize any capital gain or loss on the sale, subject to any limitations on the deductibility of capital losses. If you held the virtual currency for one year or less before selling or exchanging the virtual currency, then you will have a short-term capital gain or loss. If you held the virtual currency for more than one year before selling or exchanging it, then you will have a long-term capital gain or loss.
- When you receive property, including virtual currency, in exchange for performing services, whether or not you perform the services as an employee, you recognize ordinary income.
If you need help with your cryptocurrency transactions, please contact Tax Resolution Society and we are well prepared to assist you.