Getting Crypto Tax Reporting Right
One area that has been of particular interest for us while developing Snowball has been Tax Optimization. When we began this journey we looked at every possible way we are able to make the process of cryptocurrency investing more user-friendly, from start to finish and everything in between.
Back in March of 2014, the IRS addressed cryptocurrencies as what they call “virtual” currency. While acknowledging that virtual currency is used like “real” currency they stated that it has no legal tender status in any jurisdiction therefore for US Federal Income Tax purposes it is not a currency but rather a capital asset and treated as intangible personal property. For example, stocks, bonds, and other investment property are generally capital assets. Inventory and other property held mainly for sale to customers in a trade or business are examples of property that is not a capital asset. The full Notice 2014–21 issued by the IRS addressing this can be read here.
Like stocks or bonds, you will need to pay taxes on any capital gains made by the sale or trade of your cryptocurrency coins but if you’ve taken a loss it will help lower your tax bill. Usually, on sales of stocks or bonds, your brokerage firm will send you a 1099 statement. However, that is not the case with most crypto-exchanges.
When you invest in a cryptocurrency portfolio through Snowball we simplify the process by documenting all taxable events, for everyone. At the end of the year, it’s as easy as downloading your statement for simplified and convenient tax reporting.
In general, you don’t need to report or pay taxes on your cryptocurrency holdings however you do need to report when you sell, trade or earn coins. You’ll need to include the transaction when you bought the crypto as well as when you sold it separately, reporting on Schedule D your purchase price and sale price for each individual transaction. For earned coins, you’ll need to deduct employment taxes on either a W2 form or 1099. Coins that are received as gifts are also taxable and you will inherit the cost basis from the person who gave it to you. This makes things a bit more complicated for those that are buying and selling more frequently or for those who are regularly paid in crypto. For U.S. Tax purposes the fair market value of virtual currency in USD will need to be reported as of the date of payment or receipt. What may also surprise you is that even if you are not cashing your crypto out for USD, let’s say you are trading your bitcoin for another altcoin, that is still considered a taxable event and must be reported as such.
To sign up for our waitlist and be one of the first to use the app when we officially launch visit secret.snowball.money.