Welcome to WCS Money Tutorials.
Welcome to WCS Money Tutorials.

Today’s topic is “How Cryptocurrency Is Taxed”.
Today’s topic is “How Cryptocurrency Is Taxed”.

Cryptocurrency is usually taxed as capital gains, but in certain cases it may be taxed
Cryptocurrency is usually taxed as capital gains, but in certain cases it may be taxed

as ordinary income and may even be subject to employment or self-employment taxes.
as ordinary income and may even be subject to employment or self-employment taxes.

Special rules apply to cryptocurrencies received as a gift.
Special rules apply to cryptocurrencies received as a gift.

Under the federal tax code, cryptocurrency, sometimes called virtual currency, is treated
Under the federal tax code, cryptocurrency, sometimes called virtual currency, is treated

as property, so most tax rules that apply to property sales also apply to cryptocurrency
as property, so most tax rules that apply to property sales also apply to cryptocurrency

transactions.
transactions.

The value of cryptocurrency in a transaction is its fair market value in dollars when the
The value of cryptocurrency in a transaction is its fair market value in dollars when the

transaction takes place.
transaction takes place.

Because cryptocurrencies are treated as property rather than securities, the wash sale rules,
Because cryptocurrencies are treated as property rather than securities, the wash sale rules,

which disallows claiming losses for securities repurchased within 30 days of the sale, do
which disallows claiming losses for securities repurchased within 30 days of the sale, do

not currently apply, as of December 2021, but this may soon change.
not currently apply, as of December 2021, but this may soon change.

However, the economic substance doctrine may apply. Losses from a transaction taken solely to claim a loss may be disallowed.
However, the economic substance doctrine may apply. Losses from a transaction taken solely to claim a loss may be disallowed.

In most transactions, cryptocurrencies are considered a capital asset.
In most transactions, cryptocurrencies are considered a capital asset.

However, cryptocurrencies are not capital assets for businesses that hold cryptocurrencies
However, cryptocurrencies are not capital assets for businesses that hold cryptocurrencies

as inventory or receive cryptocurrency as payment.
as inventory or receive cryptocurrency as payment.

The tax basis of the cryptocurrency is the amount paid for the cryptocurrency minus expenses
The tax basis of the cryptocurrency is the amount paid for the cryptocurrency minus expenses

for acquiring the cryptocurrency, including fees, commissions and other acquisition costs.
for acquiring the cryptocurrency, including fees, commissions and other acquisition costs.

The holding period for cryptocurrency begins the day after it is received.
The holding period for cryptocurrency begins the day after it is received.

The holding period ends when the cryptocurrency is disposed of.
The holding period ends when the cryptocurrency is disposed of.

The long-term capital gains rate applies to cryptocurrencies held longer than 1 year.
The long-term capital gains rate applies to cryptocurrencies held longer than 1 year.

Interest earned from cryptocurrencies is treated like interest earned from other investments,
Interest earned from cryptocurrencies is treated like interest earned from other investments,

so it is taxed as ordinary income.
so it is taxed as ordinary income.

Airdropped currency is also taxed as ordinary income, equal to the fair market value of
Airdropped currency is also taxed as ordinary income, equal to the fair market value of

the cryptocurrency when it is received, but only if you have control over selling or otherwise
the cryptocurrency when it is received, but only if you have control over selling or otherwise

disposing of it.
disposing of it.

The taxation of cryptocurrency received as gifts is the same as for other property received
The taxation of cryptocurrency received as gifts is the same as for other property received

as gifts.
as gifts.

The holding period began when the donor received it, if the donee has documentation to support
The holding period began when the donor received it, if the donee has documentation to support

it; otherwise, the holding period begins the day after the donee receives the gift.
it; otherwise, the holding period begins the day after the donee receives the gift.

When you dispose of the gift, if you have a gain, then your basis will equal the donor’s
When you dispose of the gift, if you have a gain, then your basis will equal the donor’s

basis + any gift tax the donor paid for the gift.
basis + any gift tax the donor paid for the gift.

If you have a loss, then your basis equals the lesser of the donor’s basis or the fair
If you have a loss, then your basis equals the lesser of the donor’s basis or the fair

market value of the cryptocurrency when you received it.
market value of the cryptocurrency when you received it.

If the donor’s basis cannot be substantiated, then your basis is 0.
If the donor’s basis cannot be substantiated, then your basis is 0.

Donations of cryptocurrency are tax-deductible under the same rules as with donating property.
Donations of cryptocurrency are tax-deductible under the same rules as with donating property.

If you receive new coins because of a hard fork in a blockchain, then you may have taxable
If you receive new coins because of a hard fork in a blockchain, then you may have taxable

income if they have a readily ascertained market value.
income if they have a readily ascertained market value.

Soft forks do not result in the creation of new cryptocurrency; therefore no income is
Soft forks do not result in the creation of new cryptocurrency; therefore no income is

received from soft forks.
received from soft forks.

Recipients of airdrops, which are promotional distributions of coins or tokens to promote
Recipients of airdrops, which are promotional distributions of coins or tokens to promote

a new cryptocurrency or blockchain, may have taxable income if the distributed currency
a new cryptocurrency or blockchain, may have taxable income if the distributed currency

has value.
has value.

Payments in virtual currency are also subject to backup withholding if a cash payment of
Payments in virtual currency are also subject to backup withholding if a cash payment of

the same amount would also be subject to backup withholding.
the same amount would also be subject to backup withholding.

Payments to independent contractors in cryptocurrency worth $600 or more must be reported to the
Payments to independent contractors in cryptocurrency worth $600 or more must be reported to the

IRS and to the recipient on Form 1099–MISC, Miscellaneous Income.
IRS and to the recipient on Form 1099–MISC, Miscellaneous Income.

Considering the resources required, cryptocurrency mining is considered a business and income
Considering the resources required, cryptocurrency mining is considered a business and income

received for mining coins is considered ordinary income.
received for mining coins is considered ordinary income.

If the taxpayer is not an employee of the mining company, then they will be subject
If the taxpayer is not an employee of the mining company, then they will be subject

to self-employment taxes as well as ordinary taxes on the income.
to self-employment taxes as well as ordinary taxes on the income.

To determine gain, if a particular cryptocurrency was received at different prices, then any
To determine gain, if a particular cryptocurrency was received at different prices, then any

cryptocurrency sold or otherwise disposed of, must be identified to determine the basis
cryptocurrency sold or otherwise disposed of, must be identified to determine the basis

and the resulting gain or loss.
and the resulting gain or loss.

If the units are not identified, then the disposition is considered to be first-in,
If the units are not identified, then the disposition is considered to be first-in,

first-out (FIFO).
first-out (FIFO).

Capital gains and losses involving cryptocurrencies are reported the same way other capital gains
Capital gains and losses involving cryptocurrencies are reported the same way other capital gains

or losses are reported on Form 8949, and then summarized on Schedule D, as you can see with
or losses are reported on Form 8949, and then summarized on Schedule D, as you can see with

this example.
this example.

The results are then transferred to Form 1040, U.S. Individual Tax Return.
The results are then transferred to Form 1040, U.S. Individual Tax Return.

Thank you very much for your time.
Thank you very much for your time.

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I would appreciate any suggestions, so please leave them in the comments below.
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Thank you.
Thank you.