How to Report Cryptocurrency Received as Payment for Goods, Services, or Salary

How to Report Cryptocurrency Received as Payment for Goods, Services, or Salary

Hey there! Reporting cryptocurrency you received can seem confusing and intimidating. But it doesn’t have to be! This article will walk you through the basics in a simple, step-by-step way. I’ll explain what information you need to report, how to calculate gains and losses, what tax forms to fill out, and more. My goal is to break it down into bite-sized pieces so you feel empowered, not overwhelmed. Reporting crypto isn’t so scary when you know what to do. Let’s get started!

What You Need to Report

The IRS treats cryptocurrency as property, not currency. So that means you need to report it similarly to how you report other investment property like stocks or bonds. For each transaction – meaning anytime you receive crypto as payment – you’ll need to report the following information:

• Date you received the crypto payment
• Fair market value of the crypto in US dollars on the date you received it
• Your cost basis, which is the fair market value since you received it as payment, not by purchasing it

You report these details for all crypto transactions, whether you received it as payment for goods/services or as part of your salary. The record keeping can be tedious, but it’s necessary. My advice? Use crypto tax software to make it easier. More on that later!

How to Calculate Gains and Losses

Unlike regular currency, crypto fluctuates wildly in value from day to day. So you’ll need to calculate whether you had a capital gain or loss whenever you sell or spend your crypto.

Here’s how to calculate it:

1. Take the fair market value of the crypto in US dollars when you sold or spent it.
2. Subtract your cost basis, which is the fair market value in US dollars when you first acquired the crypto.
3. The difference is your capital gain or loss.

Positive difference = capital gain
Negative difference = capital loss

You report these capital gains and losses on IRS Form 8949. More details on that below!

How to Fill Out IRS Form 8949

Form 8949 is where you provide the details on all your crypto transactions for the year. You’ll list each transaction on a separate line, including date acquired, date sold, proceeds, cost basis, and gain/loss. I recommend downloading Form 8949 to see exactly what it looks like.

To make filling it out easier, use crypto tax software like CoinTracker or TaxBit. They integrate directly with exchanges and wallets to auto-import your transaction history. Then they generate a pre-filled Form 8949 for you based on your imported data. Way better than doing it manually!

How Cryptocurrency Gains and Losses Affect Your Taxes

The capital gains and losses you report on Form 8949 then get carried over to your 1040 tax return. Here’s how:

• Short-term gains/losses: These get reported on Schedule D and flow into your ordinary income rate.
• Long-term gains/losses: These get reported on Schedule D and are generally taxed at 0%, 15% or 20%, depending on income.

If you received crypto as payment for services rendered, it’s considered ordinary income. You would report it on Schedule C (self-employment income) or Schedule 1 (additional income). The fair market value on the date received gets reported as income.

Other Important Tips

Here are some other key things to keep in mind when reporting crypto:

• Wallets and exchanges don’t issue tax forms. You have to self-report.
• Mining and staking rewards are taxable income.
• Exchanges between coins are taxable events.
• Transactions involving NFTs have tax implications.
• Keep detailed records with cost basis and fair market value.
• Consider using crypto tax software to eliminate headaches.

Hopefully this article helped explain the crypto tax basics! While it can be confusing, taking it step-by-step makes it manageable. Let me know if you have any other questions!