| It's nearly impossible to escape the daily news coverage of cryptocurrency. I have to believe the biggest challenge for an investor these days is not getting caught up in all the hype.
If you've decided to take the crypto plunge and invest in the cryptocurrency market, remember that as with any other investment, it's important to do some serious research before you fork over any money.
Another important point to keep in mind is that cryptocurrency tax reporting can be very complicated, especially since some transactions trigger capital gains while others count as ordinary income.
You also need to know going in that the IRS wants a share of all your cryptocurrency transactions. It doesn't matter to the IRS where a bitcoin is acquired or disposed of; it must be reported on your tax returns, and any income or capital gain or loss indicated.
So, every bitcoin transaction is taxable. Bitcoin users will have to calculate their gain or loss every time they purchase goods or services with bitcoin.
And unfortunately, many investors don't realize those day-to-day activities are taxable, including sale of cryptocurrency for cash, exchange of one virtual currency for another and using cryptocurrency or crypto debit cards to pay a merchant.
Things may become even more complicated for crypto investors because the Senate's $1 trillion federal bipartisan infrastructure bill seeks to crackdown on cryptocurrency tax reporting.
The bill calls for increased cryptocurrency tax reporting and the proposal may require cryptocurrency brokers to report purchase and sales prices, making it easier for the IRS to track profits. The result will likely be higher tax bills for some crypto investors.
It's evident that the IRS is taking note of the growth in digital currencies and closely scrutinizing tax returns for any discrepancies involving cryptocurrency.
If you own or have transacted digital currencies, you need to stay current and follow and comply with the IRS guidance on tax reporting involving cryptocurrency. It's essential to understanding the cryptocurrency tax laws and how to report all transactions.
For more cool stuff like this, please follow me on Twitter @jimpavia and check out CNBC's Financial Advisor Hub and CNBC + Acorns Invest in You: Ready. Set. Grow. |
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