Did you trade Bitcoin, Ethereum, or any other cryptocurrency this year? If the answer to that question is yes, you will have to report it on your taxes.
The IRS considers cryptocurrencies as "real property" and is subject to capital gains rules. Depending on how long you hold your cryptocurrencies, your sales could be considered short-term (held for 365 days or less) or long-term (held for 366 days or more).
Regardless of the holding period, you will receive a 1099-B (for domestic clients) or a p/l statement (for international clients) and will use this form to report your gains or losses.
The following are a few general questions related to cryptocurrency taxes at tastyworks. We highly recommend speaking with a licensed tax professional if you have any questions regarding your potential taxable liabilities.
Will I receive a tax form for my cryptocurrency trades?
Domestic clients will receive a 1099-B cryptocurrency tax form for your realized gains/losses for the current tax year.
I am an international client. Will I receive a tax form for my crypto trades?
International clients will not receive tax forms for any realized cryptocurrency trades. Instead, you will have access to a gain/loss CSV file, which you can use to help determine your potential taxable liabilities.
I thought cryptocurrencies were an unregulated asset.
Yes, they are still considered unregulated assets. However, in 2021 Congress passed H.R.3684 - Infrastructure Investment and Jobs Act, which created reporting requirements for brokers and cryptocurrency exchanges.
How will my cryptocurrency trades be taxed?
The current IRS rule considers all cryptocurrency trades " real assets." This means all positions will have a holding period and follow the short-term and long-term capital gains tax rule, similar to long stock positions.
Capital Gains/Loss Holding Period
Close a cryptocurrency position held for ≤ 365 calendar days
Close a cryptocurrency position held for ≥ 366 calendar days
If you sell a cryptocurrency position less than 366 days after purchasing it, all gains and losses will be treated as short-term.
If you sell a cryptocurrency position more than 366 days after purchasing it, all gains and losses will be treated as long-term.
Are commissions included on the 1099-B cryptocurrency tax form?
Yes, any commissions paid while trading cryptocurrencies are accounted for in your 1099-B and the Gain/Loss CSV file. When opening a cryptocurrency position, commissions will be included in your cost. Conversely, any commissions charged will be deducted from your proceeds when closing a cryptocurrency position.
Will the 1099-B cryptocurrency tax form be included in the consolidated 1099?
No, you will receive a separate tax form, similar to how futures are reported when trading them in a taxable account. If you realize a gain or loss during the calendar year after closing any cryptocurrency position, you will receive a separate 1099-B for your cryptocurrency trades.