The short answer to this question is: of course! As cryptocurrency has become a more popular investment vehicle among younger investors, this is a good question and one that is getting more attention from the IRS.
Buying and selling crypto, just like buying and selling a share of Tesla, is taxed as a capital gain. The capital gain holding periods apply as well. Keeping track of the gain or loss from crypto trading is easy if you are using a broker like Robinhood, which will issue you a Form 1099-B (Proceeds from Broker and Barter Exchanges).
However, if you use Coinbase or another crypto exchange, you will need to track the gains and losses on your own. Coinbase and Gemini are not brokers and will not issue a 1099-B. This means that you will need to keep track of the following:
- Purchase Date
- Purchase Price
- Sale Date
- Sale Price
This can get hairy if you are buying and selling pretty frequently, but it is taxable income and you are required to report it on your tax return.
What happens if you see a great deal on patio furniture at Overstock and purchase it with crypto? You will have a reportable gain or loss most likely. Currently, the IRS considers using crypto for purchases to be effectively selling the currency.
So, keep in mind that when investing or using crypto as currency, you need to keep track of the gains and losses for your tax return. The IRS is cracking down on these types of transactions, and you do not want anything to come back and bite you later!