Investments in cryptocurrency may be subject to federal taxation.
The IRS considers holdings in cryptocurrency to be “property” which means it’s taxed like other investments that are bought and sold, such as stock or gold.
Andy Rosen, an investing writer at NerdWallet, says if you sold any of your virtual currency last year, and realized a profit, that capital gain – the difference between the value when you bought it and when you sold it – is taxable.
“On the other hand, if you owned crypto last year, but you didn’t sell it – even if your portfolio increased in value by a good amount – you won’t owe any taxes for the investment gains,” he explained. “You haven’t realized the gain until you cash it out.”
While you can expect to get a tax form from your stockbroker about the tax consequences of your investment portfolio, you might not get the needed paperwork from the online exchange that sold you the cryptocurrency.
“But that doesn’t mean you don’t owe taxes on your capital gains,” Rosen cautioned. “So, it may be on you to figure out exactly what you owe.”
Some exchanges will send you the info you need to create the document for the IRS, he said. Others will allow your tax software to import the information. There are also dedicated crypto tax software programs which will help you square-up with the IRS.
More Info: Crypto Taxes in 2022: Tax Rules for Bitcoin and Others
