In a recent post, we reported on the results of a recent legal battle between the IRS and Coinbase—the results of which forced the cryptocurrency platform to release details about its users to the IRS. Income and assets through cryptocurrency have always been taxable, but the results of this case increase the likelihood that individuals dealing in cryptocurrency will be caught if they fail to report such assets.
If you’re paying in—or getting paid in—cryptocurrency, this post provides a basic overview of how to track and calculate your transactions for your tax return.
You’re an employer
If you’re an employer who pays your workforce in cryptocurrency, as with standard monetary payments, you are required to submit a W-2 form to the IRS. The amount you report on your W-2 must be in U.S. dollars. To calculate the value in U.S. dollars, you must figure the value of each cryptocurrency payment at the time you paid it. If you pay your employees weekly, this means you’ll have to make 52 separate conversions. For this reason, it’s important to track and convert each payment at the time you make it throughout the year.
You’re an employee
If you’re an employee who gets paid in cryptocurrency, you’ll receive a W-2 form, which your employer will have already converted into U.S. dollars for you. Claim the amount listed on your tax return as usual. No extra work is required on your part.
You’re self employed
If you’re self employed, you won’t receive a W-2 from an employer. Therefore, it’s your job to follow the tracking and conversion process described above, in order to accurately report your earnings as U.S. dollars.
Cryptocurrency offers many advantages, but it also creates extra complications come tax season. If you’re overwhelmed by the cryptocurrency reporting process, an experienced tax attorney can be a great asset in helping you prepare your tax return.