One of the newest and the biggest asset class that has to be considered for taxation is the Crypto Currency transactions.
IRS has ruled that the CryptoCurrency must be considered as an asset instead of a real currency. What does that mean? A taxpayer must treat any transaction involving cryptocurrency as a capital gain activity, it could be short or long-term gain. The transactions that may trigger the tax consequences are:
- Airdrop of cryptocurrency – if cryptocurrency assets are obtained free without any purchase
- Selling a cryptcurrency
- Using a cryptcurrenct for purchasing a product or completeing a purchase transaction of a product using the cryptocurrency.
However, purchasing a cryptocurrency is not a tax-related activity.
Example:
Purchasing a cup of coffee using cryptocurrency;
This activity will result in a tax-related activity capital-gain or loss activity. The taxpayer must calculate the capital gain using the difference in the value of the cryptocurrency used at the time it was bought and the time it was used to buy a cup of coffee. The question is, who will maintain and report all these buying and selling activities of the cryptocurrency to the IRS.
Build Back Better Bill – the responsibility of all individuals and companies has been clearly defined related to reporting requirements for all cryptocurrency transactions. According to this bill, all facilitators of cryptocurrency have been classified as brokers. All brokers must report all transactions related to cryptocurrency on 1099-B schedules. So, all cryptocurrency platforms such as Coinbase, OKcoin, etc. will be issuing 1099-B forms to all account holders for all tax-related transactions of the cryptocurrency.
