Disclaimer: BlockFi does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide--and should not be relied on for--tax, legal, or accounting advice. You should always consult your own tax, legal, and accounting advisors before engaging in any transaction.
We’ve seen a lot of changes over the past 12 months, but one of the few constants every year is tax season. Tracking your income and accurately calculating your taxes can seem daunting, especially when you’re a cryptocurrency investor. But with preparation and the right resources, crypto taxes can become much more manageable. Please note that this article only pertains to federal US taxes.
When Do You Owe Taxes on Your Crypto?
Crypto assets are taxed when they are exchanged for a profit. This can occur through a few different events, including:
Trading for another cryptocurrency
Selling for fiat currency (e.g. USD)
When used to purchase goods or services
Earning crypto as income via mining, staking, etc.
Capital Gains and Losses
The gains or losses made from buying, selling, spending, or earning cryptocurrencies are referred to as capital gains and capital losses.
Capital gains are considered a form of taxable income and are required to be reported to the IRS. Capital losses, however, can possibly reduce your tax liabilities. The government assesses taxes based on the net of combined capital gains and losses. That means if you gain $1,000 on an investment, but lose $500 on another, your taxable income from the investment could be net $500.
Non-Taxable Crypto Events
Crypto investors are not taxed for simply holding crypto assets, regardless of whether their value has appreciated or depreciated since they were purchased. Crypto assets are taxed if they have been traded, sold, spent, or mined. Non-taxable events include:
How Crypto Assets Are Taxed in the U.S.
Crypto assets are considered property by the IRS
(similar to gold). This means any capital gains and losses are reported as individual transactions via the 1099-B form. There is also the 1099-MISC form which is designed to report miscellaneous income to the IRS. It does not list individual transactions. The 1099-MISC is sent to the IRS and taxpayers that have earned more than $600 on crypto earnings, crypto income earnings, crypto bonuses, or staking. Since the 1099-MISC only reports a taxpayer’s total income, and does not include an itemized list of transactions, the 1099-B form is also issued to help taxpayers complete their tax filings.
The 1099-B form is designed to give taxpayers the information necessary for filing the IRS 8949 tax form
, designed to track all transactions involving capital assets, including cryptocurrencies, stocks, and equities. In this form, taxpayers can 1) properly report capital gains and losses; 2) classify transactions as short- or long-term, and 3) report if transactions were reported on a 1099-B.
How BlockFi Can Help
BlockFi supplies eligible US clients with 1099-B and 1099-MISC forms that track all transaction data on the BlockFi platform, including the dates of purchase and sale and each transaction’s cost basis, fair market value, and gain or loss. Cost basis and fair market value data will only be supplied if the asset was bought, sold, or traded on BlockFi’s platform.
The 1099-B form can be used by a tax accountant or automated tax software to fully report your BlockFi transaction history, making the process that much easier.
Please note, only US taxpayers who have earned more than $600 of interest and bonuses in 2020 will have a 1099-MISC form available. Check here
for more details on how to access this form.
As always, clients should consult with their tax advisors for information relating to their specific facts and circumstances. Please seek an independent and personalized tax professional for financial advice before making any financial decision.
Disclaimer: Nothing contained in this announcement should be construed as a solicitation of an offer to buy or offer, or recommendation, to acquire or dispose of any security, commodity, investment or to engage in any other transaction. The information provided in this announcement is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. This announcement is not directed to any person in any jurisdiction where the publication or availability of the announcement is prohibited, by reason of that person’s nationality, residence or otherwise.
Neither BlockFi nor any of its affiliates or representatives provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
Digital currency is not legal tender, is not backed by the government, and crypto interest accounts are not subject to FDIC or SIPC protections. For more information, please see BlockFi’s Terms of Service.