Turbotax Cryptocurrency Method Used

Turbotax cryptocurrency method used

Turbotax cryptocurrency method used

Convertible virtual currency is subject to tax by the IRS

Bitcoin is the most widely circulated digital currency or e-currency as of 2019. It's called a convertible virtual currency because it has an equivalent value in real currency.

Turbotax cryptocurrency method used

The sale or exchange of a convertible virtual currency—including its use to pay for goods or services—has tax implications. The IRS answered some common questions about the tax treatment of virtual currency transactions in its recent IRS Revenue Ruling 2019-24 and it Frequently Asked Questions article.

How to file your cryptocurrency & bitcoin taxes with CoinTracker and TurboTax

Tax treatment depends on how a virtual currency is held and used. Below are some tips using Bitcoin as an example:

Bitcoin used to pay for goods and services taxed as income

If you are an employer paying with Bitcoin, you must report employee earnings to the IRS on W-2 forms.

  • You must convert the Bitcoin value to U.S.

    Crypto Tax Reports

    dollars as of the date each payment is made and keep careful records.

  • Wages paid in virtual currency are subject to withholding to the same extent as dollar wages.

Employees must report their total W-2 wages in dollars, even if earned as Bitcoin.

Self-employed individuals with Bitcoin gains or losses from sales transactions also must convert the virtual currency to dollars as of the day received, and report the figures on their tax returns.

Bitcoins held as capital assets are taxed as property

If Bitcoin is held as a capital asset, you must treat them as property for tax purposes.

Turbotax cryptocurrency method used

General tax principles applicable to property transactions apply. Like stocks or bonds, any gain or loss from the sale or exchange of the asset is taxed as a capital gain or loss.

Turbotax cryptocurrency method used

Otherwise, the investor realizes ordinary gain or loss on an exchange.

Bitcoin miners must report receipt of the virtual currency as income

Some people "mine" Bitcoin by using computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger.

According to the IRS, when a taxpayer successfully “mines” Bitcoin and has earnings from that activity whether in the form of Bitcoin or any other form, he or she must include it in his gross income after determining the fair market dollar value of the virtual currency as of the day you received it.

If a bitcoin miner is self-employed, his or her gross earnings minus allowable tax deductions are also subject to the self-employment tax.

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