When it comes to stocks, the FDA is very clear on how they're taxed. When you sell your stock, you have to pay either a short-term capital gains tax (if stock was held for a year or less) or a long-term capital gains tax (if stock was held for over an year) based on your tax bracket. Dividends are also taxed at your tax bracket rate (if non-qualified) or a capital gains rate (if qualified).
Cryptocurrency tax details, on the other hand, are ambiguous. The guidance that the IRS provides for cryptocurrency is that they should be considered property rather than as money. Due to this, here's the breakdown:
- If you bought and sold cryptocurrency, you need to report your gains or losses to the IRS. You'll pay taxes on gains and your taxes will be lower if you've had losses.
- If you bought and are holding onto the virtual coins, you haven't actually realized gains, so nothing needs to be reported.
- If you bought one cryptocurrency and used it to buy another, the gains or losses will need to be reported on that as well.
A key difference between stocks and crypto is that stock exchanges will send you a tax form for when you file your taxes. Most crypto exchanges will not do that (although they might send you a sheet of all transactions), so you will need to make the calculations yourself. It's also impossible for an exchange to keep track of change in capital since coins are transferred across exchanges often and the original purchase cost is only known to the exchange in which it was purchased. Due to this, cryptocurrency exchanges can't reliably report tax information. Therefore, when you sell a coin, you'll want to calculate the change in capital per transaction:
total received when selling - total spent when buying (including transaction costs)
Take this scenario...you spend $250 to buy 4 coins for Crypto A. Each coin cost $60 and transaction fee was $10 total. The gains goes up slightly, so you decide to sell 2 coins and receive $140. Your change in capital is the following:
$140 - ($250 / 4) * 2 = $15
Even though it isn't an IRS regulation, there are details on penalties for not reporting gains for taxing. The best approach is to keep a log of trades and report them annually with your taxes. If you've made trades, don't have logs, and haven't reported anything yet, reconcile that by making your best attempt to calculating the changes and filing them with your taxes.
**We are not tax professionals. Be sure to contact your tax advisor when filing cryptocurrency taxes.