The first IRS tax guidance for cryptocurrencies was introduced March 2014, few CPAs have done comprehensive analyses of the record-keeping and enforcement challenges that will arise from the IRS designation of Bitcoin as property rather than currency.

The sale or exchange of a convertible virtual currency has tax implications, the nature of which depends on the investment and business activity.

If you hold cryptocurrencies as a capital asset, you must treat them as property for tax purposes. General tax principles applicable to property transactions apply. Long-term gains and losses will be taxed at the taxpayer’s applicable capital gains rate which are much more favorable than ordinary income rates.

If the coins are held as a capital asset any gain or loss from the sale or exchange of the asset is taxed as a capital gain or loss. Otherwise, the investor realizes ordinary gain or loss on an exchange.

This is favorable for miners and long-term investors, since they will capture a much more favorable marginal rate. Active traders who have short-term capital gains may still face ordinary income rates.

This categorization is also unfavorable to investors with trading losses since it will be much more difficult to write off losses due to their categorization as a property rather than currency.  The IRS limits the amount of property losses that can be claimed on personal tax returns to $3,000 per year for both married and single filers. Short-term trading losses in excess of this amount will be carried forward for future years.

Camuso CPA PLLC offers comprehensive services to develop and tailor a first-rate tax plan for your business needs.  Reach out to our team regarding any questions about Cryptocurrencies or establishing a comprehensive tax plan. We are one of the only Charlotte CPA tax firms that handle cryptocurrency taxes.

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