Are you among the estimated 15% of Americans who own digital currency? If you sold or traded it last year, you’re probably sitting on big gains, and those will come with hefty tax bills.
There are smart ways to manage those obligations, and not-so-smart ones, too.
Lots of crypto investors might be tempted to hide their heads in the tax-planning sand, and it’s easy to see why. The tax issues are complex. Brokerage firms don’t do the hard work of tracking their holdings, as they typically do for owners of stocks and bonds. Guidance from the Internal Revenue Service can be confusing, too.
Still, they can’t afford to throw up their hands.
Just a few years ago, many taxpayers were simply unaware of the tax implications of trading Bitcoin or other digital currencies. In 2014, the IRS had said that crypto was considered property, like stocks, and would therefore be subject to capital-gains taxes when sold or traded. (If investors hold anything that’s considered property for under a year, it’s taxed at ordinary income tax rates. If it’s held for longer, it generally qualifies for lower long-term capital gains tax rates.)