Yes. The IRS classifies cryptocurrency as personal property. When cryptocurrencies are spent with a taxable transaction, their gains or losses must be reported to the IRS. Gains may be taxed and losses may be tax deductible, but all taxable transactions must be reported. Be sure to file cryptocurrency taxes in 2017 and file adjustments for years prior.
The blockchain, by nature, is a permanent record of all transactions conducted on it. Any transactions that are considered taxable events by the IRS will require the payment of taxes. Additionally, any unpaid taxes will incur interest until paid.
Taxable transactions are spend transactions to either 1) convert to a fiat currency, 2) purchase a good or service, or 3) convert to another cryptocurrency.
Non-taxable transaction are either 1) purchasing cryptocurrency with a fiat currency, 2) giving cryptocurrency away, or 3) transfering cryptocurrency from one wallet to another wallet (with the same owner).
Fiat currencies are currencies which a government has declared to be legal tender, but it is not backed by a physical commodity. Example: US Dollar, Euro, or Yuan.
The IRS requires IRS Form 8949 to file taxes on cryptocurrency, in addition to 1099-R. We provide a CSV download of taxable spent transactions classified by you, to assist you when filing IRS Form 8949.
The IRS expects due diligence when it comes to accuracy. We make it easy to be accurate by providing currency cost basis accurate within the daily "close price" of the cryptocurrency, normally the price around midnight.
We currently support Bitcoin, Ethereum, Litecoin, and Dogecoin. More currencies are coming soon.
Once cryptocurrency is sold in a taxable transaction, the gain or loss of that spend transaction must be calculated as the difference between the value of that specific coin at time of purchase and time of sell.
When selling Cryptocurrency, consider selling on a First-In-First-Out (FIFO) basis, a Last-In-First-Out (LIFO) basis, or in specific tax lots that are most efficient. These options have a major impact on the calculations of both long- and short-term capital gains as taxes.