Cryptocurrencies are subject to tax when you sell them or if you earn them as income. You declare your transactions in US dollars, which generally means converting the value of your cryptocurrency to dollars when you buy, sell, mine, earn or use it. You have to pay taxes on cryptocurrencies, just like with Gold and Silver IRA Companies. The IRS classifies cryptocurrencies as property, and cryptocurrency transactions are subject to tax by law just like transactions related to any other property. If you don't declare a taxable crypto activity and face an IRS audit, you may incur interest, fines, or even criminal charges.
You only pay taxes on your cryptocurrencies when you make a profit, which only happens when you sell, use or exchange them. Having a cryptocurrency is not a taxable fact. The IRS estimates that only a fraction of people who buy, sell and trade cryptocurrencies correctly reported those transactions on their tax returns. Every time you get rid of a cryptocurrency, you're making an equity transaction that must be reported on your tax return.
When you are issued one of these 1099 forms, it is also sent to the IRS so that it can match the information on the forms with what you declare on your tax return. Taxpayers must report cryptocurrency sales, conversions, payments and income to the IRS and state tax authorities, where appropriate, and each of these transactions has different tax implications. If, like most taxpayers, you think of cryptocurrency as an alternative to cash and you don't keep track of the capital gains and losses from each of these transactions, it can be difficult to decipher them at the end of the year. Selling Bitcoin that you have for more than a year will be considered a long-term profit and you'll pay a lower crypto tax rate for it.
Capital gains and losses in cryptocurrencies are reported along with other capital gains and losses on IRS Form 8949, Sales and Disposal of Capital Assets. This is counted as taxable income on your tax return and you must report it to the IRS regardless of whether you receive a 1099 form reporting the transaction or not. Although Coinbase does not provide this information through direct reporting to the IRS, you must report this activity on your tax return, since it is taxable income. For example, if you operate on a cryptocurrency exchange that provides reports through Form 1099-B, Revenue from trading transactions with brokers and swaps, they will provide a report of these transactions to the IRS.
Part of investing in cryptocurrency is recording your gains and losses, reporting them accurately, and paying your taxes. If you traded cryptocurrencies on an investment account or cryptocurrency exchange or used them to make payments for goods and services, you may receive Form 1099-B reporting these transactions. If you earn cryptocurrencies by mining them, they are considered taxable income and can be declared on Form 1099-NEC at the fair market value of the cryptocurrency on the day you received it. To file your taxes accurately, you'll need to be a little more organized throughout the year than someone who doesn't have investments.