Cryptocurrency Taxation?!
Let’s think for a moment about what attracted each of us to cryptocurrency, blockchain technology, a digital coin that represents a storage of wealth and value, decentralization with no need for a central bank or government agency, or simply and a means by which to transfer value in exchange for goods and services through a peer to peer network.
What initially attracted many of us to crypto varies, but most us were introduced to cryptocurrency by Coinbase, and for most of us, that first purchase made was bitcoin. The king and backbone of all crypto, a revolutionary idea that was put in motion in 2009 and led us to where we are today with a total crypto market cap of over $800 billion at its highest point in December.
Most of us in the United States have at least a basic understanding of federal tax law, and our individual tax obligations as they relate to capital gains. Capital gains are the primary tax obligation as it relates to cryptocurrency, and is the reason for the IRS's interest in crypto traders.
Coinbase is by far the most recognized and largest fiat to crypto exchange in the world, but with that comes a certain amount of attention. So naturally, when the IRS decided to look closer into bitcoin traders and speculators for possible tax evasion, the obvious starting point was with Coinbase. The IRS requested transaction data on crypto trades and traders for the previous three years. Coinbase fought of course, but ultimately lost and were ordered to turn over data related to customer accounts.
For traders who seldom convert crypto to fiat, taxation is not a big concern, as a capital gain obligation is met only when a crypto to fiat exchange takes place and a profit is realized. However, for those who trade as a means of financial support, and fiat conversion is required regularly for expenses and financial obligations, it’s very important to protect yourself and keep good records of profits and losses.
