How Are Cryptocurrencies Taxed?

There are only two certainties in life: death and taxes. Even for cryptocurrency

Nobody knows when cryptocurrency will die, but let's talk about how it's taxed.

• Cryptocurrency is treated as a commodity and not like a government issued currency

• Commodities hold an adjusted cost basis (all costs to acquire) that is determined when mined or received as compensation

• Commodities when sold are classified as a Capital (property held for investment or personally) or Business (done through normal course of business activity) transaction

Holding cryptocurrency does not have any tax implications, but the following do:

• Selling of or gifting cryptocurrency

• Trading or exchanging even for other forms of cryptocurrency (e.g. Bitcoin exchanged for Doge)

• Buying good or services with cryptocurrency

• Conversion of cryptocurrency to government issued currency

Capital Transaction

• Capital gains/loss on tax return

• 50% is taxable

• Losses can only reduce capital gains

Business Transaction

• Business income on tax return

• If sole proprietor can deduct losses from other income

• Loss carryforward (applying previous years losses to other years gains) can apply

The gain or loss from the transactions that trigger taxation is derived from the following

Selling Value

• Sale price

• Compensation for property destroyed, expropriated, or stolen

• Value of traded property

Purchase Value (Adjusted Cost Basis)

• Purchase price

• Commission fees

• Legal fees