Litecoin – Kelly Bullis: Virtual currency tax rules
What is virtual currency? Sounds fake doesn’t it?
Actually, it is a recent invention. Instead of “virtual dollars” that you have been using with your bank… just numbers representing U.S. dollars on a statement… that you use instead of physical cash, to pay your mortgage, rent, utilities, car payments, etc., “Virtual Currency” is a creation of an independent business that uses software and file-servers to allow folks to pay for things in their new invented pretend currency (not U.S. dollars) through use only through mobile, computer, or digital wallets.
The IRS wants you to treat “virtual currency or cryptocurrency” (VC) as property for tax purposes. When you buy, sell or exchange VC, you will need to recognize a taxable gain or loss (just like buying, selling, or exchanging stocks).
Even Long-Term or Short-Term treatment applies. Long-Term Capital Gain is still preferred. (We’ll leave Biden’s proposed elimination of Long-Term Capital Gain treatment for another day.) So, just like stocks, keep very accurate records of when you acquire and sell any VCs.
If you accept a VC as pay for services, you will have ordinary income equal to the value in U.S. dollars on the date of receipt. Your tax basis for computing future gains or losses is the value you use for reporting that ordinary income. If you are an employee receiving your paycheck in VC, the U.S. Dollar value at the time you were paid is the amount you will see on your W-2. Same for independent contractors paid in VC.
The form 1099 will report the income you received in U.S. dollars valued at the date you received the payment in VC. If you donate or gift VC, determining basis is the same as if you donated or gifted stocks.
On your tax return this year, there is a mandatory question on page 1 of the form 1040 asking you, “At anytime during 2020, did you receive, sell, send, exchange, or otherwise acquire financial interest in any virtual currency?” If this is true, you MUST answer Yes. If you fail to answer this question correctly and the IRS catches you lying, it may be considered a CRIMINAL offense. That means you could end up in prison. You do NOT want that to happen. More detailed VC reporting and its own tax forms are coming.
I haven’t even attempted to explain the strange language in the VC world. Blocks; Blockchains; Distributed Ledger; Hard Fork; HODL; Mining; Moon; Noob; POW; POS; Private Key; Public Key; REKT; Token, Whale, etc.
Have you heard? Deut 14:26a says, “And you shall spend that money for whatever your heart desires…”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.