As cryptocurrency continues to make headlines across the nation, the IRS is remaining vigilant about tracking down those who evade paying taxes incurred from online investments. But even though the IRS stresses that those who are using virtual currencies as “real” money must pay taxes, thousands of investors are searching for ways to avoid doing just that at the end of the year. For this reason, the IRS has issued guidelines in simple terms for online investors to better understand the procedures required.
Since the IRS considers virtual currency real money, i.e., property, cryptocurrency is subject to the same taxation as any other income would be. It is also subject to the same reporting requirements as other property, such as stock and real estate. All general taxing principles that are applied to transactions of property apply to transactions involving virtual currencies. That includes gains and losses from the purchase and sale of cryptocurrency.
The IRS has also taken note that some employers have begun using coin-based currencies such as Bitcoin and Ethereum to pay their employees. The IRS stresses that if you’re an employee who is being paid by online currency transactions, your employer must submit a W-2 form, and all parties are subject to federal income withholdings from payroll taxes. If you’re a private contractor or are otherwise independently employed, self-employment taxations apply, and a Form 1099 must be issued to report the payer and the payee for any amounts totaling $600 or more a year.
All things cryptocurrency continue to catch the attention of the IRS. If you find yourself in the position of buying, trading, selling or making a payment with virtual currency, or if you are being paid for a service with these tech coins, be sure to contact the Law Offices of Christy Lee, P.C., for sound advice on properly reporting to the IRS.