Cryptocurrency Taxation: How To Handle Its Different Facets

March 21, 2018

Did you just find out that you owe the taxation authority some $30k?

But you don’t have this $30k because you traded in cryptos?

Well, then you are not alone as this is exactly what is going on with the cryptocurrency investors or users.

So, what is actually the matter and what is taxable?


For an individual user or investor, cryptocurrencies are taxable under the capital gains tax law as cryptocurrencies like bitcoin are taken as property and not currency.

If you are purchasing anything by using digital currency, then that purchase is liable to be taxed as capital gains. So, if you have paid for something in crypto or cashed out your cryptos, then it’s time you report your capital gains.

Additionally, if you held your cryptocurrency for a year and then made the sale, the profits so incurred are also taxable as they are typically the long-term capital gains. However, your losses won’t be deductible against the future tax years.


It’s not over yet! If you have made the transaction from one crypto say bitcoin to another, as in ethereum, in that case too your transactions are taxable. Here, simply paying the sales tax is not enough.

The reason being cryptocurrencies are not like your regular gift card or PayPal for that matter. These payment systems are simply the channel that you use to make your transaction however cryptocurrencies are properties where you are exchanging one for the other. This may look like a trap to you but you are actually investing in another property i.e a cryptocurrency.


The popularity of digital currencies has risen to a level where the companies are also paying in bitcoins and ethereum to their employees. It might not be that regular scenario but it certainly is exercised.

So, if you are paying your employees in digital currency then just like the regular fiat money, you have to pay taxes on it. The employer has to deduct the necessary taxes in relation to the employee as well as employer and pay them to the appropriate organization.

A similar instance took place when Coinbase sent 1099 to a group of people but they didn’t know its meaning.

It’s not all, the confusion also comes into the form that crypto brokers are not required to issue the disclosure forms of 1099. These forms are basically used by IRS for digital currencies as it’s an income other than bonuses and wages. However, the individuals do have to report their gains.

The problem stems from the fact that till now the digital currencies weren’t designed to operate under the sight of the banking industry or government. In the absence of any regulations, there is nothing concrete to work on through these cryptocurrencies surely fall under the gambit of tax authorities.

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