"The Taxing Side of Crypto Trades" - How to account for your cryptocurrency gains when filing taxes.
Updated: Mar 3, 2020
On January 15, 2020, TF Blockchain Austin hosted a Fireside Chat with David Kemmerer, CEO & Co-Founder of CryptoTrader.Tax, for our TF Blockchain Podcast, interviewed by TF Blockchain Founder, Jonathan G. Blanco.
The world of finance has experienced an evolution of innovation within the last decade and, as expected this has resulted in several institutional changes. The age of crypto trading and cryptocurrencies seemed a little too abstract in the beginning, but when they started spiking higher in 2014, even the government acknowledged this next step in FinTech industrialization. As an aspect of finance and economic activities, it became a question of when, not if, crypto traders and those who transact in cryptocurrencies would have to pay tax.
TF Blockchain Podcast host, Jonathan G. Blanco, met with David Kemmerer, Co-Founder of CryptoTrader.Tax, a leading website for information on, as well as a calculation of, tax on cryptocurrency. The conversation was focused on exploring the taxing side of crypto trades, its implication for individuals who had stock/shares in cryptocurrencies, the different indicators of taxable income and how to minimize costing for tax dropping.
David Kemmerer, who studied finance and marketing at the University of Wisconsin before exploring sales and business development, was the resident expert for the conversation. He provided a succinct explanation of how the government’s interest in crypto trading peaked following the 2014 spike in activity across major cryptocurrencies like bitcoin.
In the United States, the economic institution, through the Internal Revenue Service (IRS) issued its first public action in light of crypto trading, in 2014. This was done through warning and action letters which simply drove awareness to cryptocurrency. Despite this initial guidance in 2014, it wasn’t until 2017 when the government really took interest and began to mobilize public action which spiked compliance.
During the course of the podcast, David Kemmerer mentioned that it was apparent that the current finance market trends were being replicated on crypto market, which implies that crypto trading activity is getting to the scale at which flat currency trading was running. With this amount of traction, it is almost a surety that the government and its frontline economic institution for taxation would enforce taxation for crypto activity. Primarily due to the shift in transactions, which was bound to affect market value for the
United States Dollar (USD) and that could mean an economic decline if activity is not taxed. To support his point, we can recall that on the 16th of January 2020, the Virtual Currency Tax Fairness of Act of 2020 was introduced in Congress.
David further explained that, the IRS posits for cryptocurrency to be regarded as property, like gold not currency, which means that capital gains will apply on all transaction where there is a gain for the crypto owner. To elucidate this, he explained how returns on investments such as property, got taxed based on the capital gain which has been incurred on sales or shares dispersion, clarifying that any capital gain on cryptocurrency will definitely be taxed. The actions of the IRS drew more awareness to crypto trading, in tandem with the publishing of a 40+ FAQ on cryptocurrency, in October 2019.
He identified the conditions under which tax payment are applicable, to be;
-If you trade cryptocurrency to flat currency (standard cash) like the US dollar
-If you trade cryptocurrency to cryptocurrency
-If you use cryptocurrency to access goods and services
-If you earn cryptocurrency as an income
In all these conditions, the cryptocurrency is calculated with the fair market value in USD. If you belong to any, or all, of these categories, then you have to figure out the amount to report.
At the beginning of 2020, the IRS issued an official declaration which mandates crypto owners to file their tax returns using the Schedule ‘D’ (Form 1040) attachment in addition to trading information which must have been provided on the recently reviewed 8949 tax form. The IRS expects at least 150 million filers to report, file and pay all tax owed on cryptocurrency and trading, by April 15, 2020. While the process of monitoring and reviewing the tax activity of crypto owners has not been determined with a definite breakdown, it is important to accord due reverence to this issuance.
The highlighted list above, is the expected bracket for tax reporting and if you fall into any of those categories, you need to evaluate your tax payment. For ease of tax evaluation; to figure out how much you have to pay, and avoid getting fined for tax default, you can use software which have been designed to help you calculate your taxes. Top of which is the crypto trader tax calculator, available on the website co-founded by David Kemmerer (www.cryptotrader.tax) which helps you get your taxes settled to be reported, and also provides general information on crypto trading.
For further advice and consultation on cryptocurrency taxing, it is best to speak with your tax accountant or an attorney.
"The Taxing Side of Crypto" - Video
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