Cryptocurrency Will Be Major IRS Focus In Upcoming Tax Season
If you’ve invested in cryptocurrency, you’ll have to agree that 2022 has not been the best of years for your investment. Nonetheless, the IRS is turning an ever more focused eye on crypto or virtual currency investments. And now, before the end of the year, is the time to think about the tax implications.
You’re not sure if the IRS will be looking at you? If that’s the case, take a look at the three most common definitions of virtual currency then decide. (1) Virtual currency is any monetary asset in digital form, including digital forms of government currency; (2) Virtual currency is a type of digital currency but is often unregulated; and (3) Virtual currency is any currency that uses cryptographic technology to ensure the security of the transactions and control of the creation of new units, which include Facebook’s Libra currency.
If you are invested in anything that fits any of those definitions, you can be sure the IRS will be zeroing in on your tax returns to see if you are claiming any gains or losses. The losses may be more beneficial to some investors this year, especially because they are likely to be rather significant losses.
Here’s why this is so important to investors. As far as the IRS is concerned, a virtual currency is the same tax-wise as the acquisition of any type of property such as real estate. When a virtual currency is sold, exchanged, used to purchase goods or services, or is otherwise converted, the fair market value of the currency on the date of its disposition becomes its selling price. The sale or exchange of virtual currency must be reported on a tax return. The holding period of the currency is determined to be short or long depending on how long the currency has been in the possession of the holder.
If you sold your holdings in cryptocurrency and book a capital loss, then the loss can be used to offset current capital gains or future capital gains on capital assets sold at a gain. The gains do not have to be associated with sales of digital assets; they could be stocks, real estate, mutual funds, ETFs, or other investments. You might want to take a closer look or talk to your financial advisor or tax attorney to make sure you’re not in for a big surprise at tax time. In the meantime, have a happy holiday!