4 Things To Know About Taxes and Cryptocurrency

By: Iche Chiu

360 CPA

Cryptocurrency has been one of the most exciting investments of the past few years. The IRS has been following the trend and updating guidance on the tax treatment of cryptocurrency. Here are four essential points to know before filing your taxes.


According to the IRS, when a taxpayer owns, controls, and is in possession of a private key for a virtual currency wallet, they have 100% custody and control over all the virtual currencies in that wallet. If the taxpayer loses the private key, they lose all their funds. This concept is akin to the taxpayer holding cash, gold, or any other asset in their personal possession. When the taxpayer owns, controls, and is in possession of the private key, the virtual currency resides in the country of the taxpayer’s residence.

How are cryptocurrency transactions taxed?

Cryptocurrency is considered a capital asset. Similar to the tax treatment of stocks, buying and selling cryptocurrencies might trigger capital gain or loss. The cost basis (original purchase price), sales price, and holding period will all affect the capital gain calculation. Additionally, since cryptocurrency is a kind of property, taxpayers need to report income if they receive the cryptocurrencies as service compensation.

FBAR filing requirement

The cryptocurrency accounts were not reportable on the Form 114, Report of Foreign Bank and Financial Account. But for the taxpayer who holds virtual currencies and/or fiat currencies on centralized virtual currency exchanges operating in a jurisdiction other than the U.S., the value of virtual currencies should aggregate with fiat currencies and any other assets required for reporting under both FBAR and FATCA, if their respective reporting thresholds are met.

Self-directed retirement choice

The cryptocurrency can be purchased in many types of retirement accounts, especially self-directed ones. As with many other asset classes, the risk and reward are high. We encourage our clients to put a tiny portion in their portfolio, say 1-2%. If it’s a bust, your retirement is not severely impacted. However, if it performs, it could provide multiple layers of benefits for tax planning.

Last but not least, if you are thinking about investing in cryptocurrency, please consult with your financial adviser, accountant, and/or attorney. After all, cryptocurrencies, just like many other investments, investors could lose all their value. For me, I have two BTC, and I intend to hold them for a long, long time – one for my daughter (age 8) and one for my son (age 6).

Happy investing!

Written by Iche Chiu

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