Cryptocurrency And Taxation: Everything You Need To Know

Though Bitcoin and other cryptocurrencies are decentralized and not issued by any bank, that doesn’t mean that you are off the hook when it comes to paying taxes.

You still have to report your Bitcoin holdings, trades and any profit. And, you’ll have to pay taxes depending on your return. It isn’t a currency, so how do you pay taxes on it? And if you are a professional and get paid in cryptocurrency

This is how things get confusing.

In this article, I will go over the things you need to understand when it comes to cryptocurrency and your taxes. 

How does the IRS view cryptocurrency?

As I already mentioned, the IRS does not consider Bitcoin or other cryptocurrency as a currency at all. 

Once again, it is not issued by a central banking authority and cannot be considered money. So, what does the IRS consider cryptocurrency to be? Instead, it is an asset.

Any Bitcoin tax consultant needs to keep this in mind as assets are taxed much differently than income. 

It’s very interesting that they consider it to be an asset as it is still used as a way to pay for things. In this sense, they think that using Bitcoin is another form of bartering. Imagine giving somebody your car in exchange for a good or service and you have an idea of how this became the designation.

Since Bitcoin is an asset, it is considered property so when you trade it, it is liable for a capital gains tax. And there are multiple ways to pay a capital gains tax so it depends on a few factors as to how much you will pay. 

Keep good records

The entire history of your Bitcoin will need to be accounted for. Make sure that you are keeping accurate records of every transaction so your accountant can understand how much you should pay in taxes. 

Aside from the fact that your Bitcoins will come under different tax codes for capital gains, there is also how they are acquired that factor into what you need to pay. 

For instance, there are long term capital gains and short term. If you have your Bitcoin for over a year and then sell it, it will come under the long term capital gains tax. Short term for anything under a year.

If you mine your Bitcoins, it is considered a business income. When you mine your coins, there is considerable expense with the electricity you will use so the cost of this is deductible. 

Now, if you are only buying and trading, then any profit from these transactions will fall under capital gains.


Even if you have a pretty firm grasp of how your taxes will be impacted when you invest or use Bitcoin, you still need to talk to a professional to make sure you don’t make any mistakes when you file.

Especially since your profit from Bitcoin is not very straightforward due to the volatility. You likely experienced some losses as well.