Cryptocurrency: It’s mysterious, volatile and all over the news. In 2017 the value of bitcoin went from about $800 early in the year to almost $20,000. But the government is just starting to take a closer look.
The Internal Revenue Service classifies virtual currency as property and says it must be included when computing the gross income of each transaction. The amount of such income is the fair-market value of the virtual currency as of the date that the virtual currency was received.
Public exchanges have a record of their users and their wallets, but no Form 1099s are being distributed. The IRS has said that anyone who uses virtual currency as a form of payment must issue a 1099 when the gross amount exceeds the reporting thresholds.
The IRS has been looking at individual tax returns for unreported gains from virtual currencies. Recently it summoned information for account holders with over $20,000 of Coinbase transactions from 2013 to 2015. Under the Tax Cuts and Jobs Act of 2017, cryptocurrency exchanges are no longer tax-free.
Matthew Halpern is a tax manager working in various industries such as professional services, information technology, and manufacturing and distribution. He also works with expatriates and foreign individuals with U.S. activity.
Published October 8, 2018.