A Comprehensive Guide on How to Report Cryptocurrency in 2018

Introduction:

In 2018, the cryptocurrency market experienced significant growth and fluctuations. As a result, many individuals and businesses were required to report their cryptocurrency transactions to tax authorities. This guide will provide you with a comprehensive overview of how to report cryptocurrency in 2018, including the relevant tax forms, reporting requirements, and best practices.

1. Understanding Cryptocurrency Transactions

Before diving into the reporting process, it is essential to understand the different types of cryptocurrency transactions. These include:

a. Purchases: Acquiring cryptocurrency through a purchase using fiat currency or another cryptocurrency.

b. Sales: Selling cryptocurrency for fiat currency or another cryptocurrency.

c. Exchanges: Trading one cryptocurrency for another.

d. Mining: Earning cryptocurrency through mining activities.

e. Airdrops: Receiving cryptocurrency as a reward for participating in a project or network.

2. Tax Reporting Requirements

In 2018, tax authorities around the world implemented stricter regulations regarding cryptocurrency reporting. Here are the key requirements:

a. Reporting Cryptocurrency Gains: If you sold or exchanged cryptocurrency for more than $20,000 in a single transaction or within a 12-month period, you are required to report the gains on Form 8949 and Schedule D of your tax return.

b. Reporting Cryptocurrency Losses: If you incurred a loss from selling or exchanging cryptocurrency, you can deduct these losses on your tax return. However, you can only deduct up to $3,000 per year.

c. Reporting Mining Income: If you earned cryptocurrency through mining activities, you must report the fair market value of the cryptocurrency as income on your tax return.

d. Reporting Airdrops: If you received cryptocurrency through an airdrop, you must report it as income on your tax return, based on the fair market value of the cryptocurrency at the time of the airdrop.

3. Reporting Cryptocurrency on Tax Forms

To report cryptocurrency transactions, you will need to complete the following tax forms:

a. Form 8949: This form is used to report all cryptocurrency transactions, including purchases, sales, exchanges, and mining income. You will need to provide details such as the date of the transaction, the type of cryptocurrency involved, and the fair market value of the cryptocurrency at the time of the transaction.

b. Schedule D: This form is used to summarize the information from Form 8949 and calculate the total gains or losses from cryptocurrency transactions. You will need to report the gains or losses on Schedule D and transfer the total to your tax return.

4. Determining Fair Market Value

Determining the fair market value of cryptocurrency at the time of a transaction can be challenging. Here are some guidelines to follow:

a. Use Reliable Exchanges: Use reputable cryptocurrency exchanges to obtain the fair market value of your cryptocurrency at the time of the transaction.

b. Consider the Market: The fair market value of cryptocurrency can fluctuate significantly. Make sure to check the market rates on the date of the transaction.

c. Consult a Professional: If you are unsure about the fair market value of your cryptocurrency, consult a tax professional or financial advisor.

5. Best Practices for Reporting Cryptocurrency

To ensure accurate and timely reporting of cryptocurrency transactions, consider the following best practices:

a. Keep Detailed Records: Keep a record of all cryptocurrency transactions, including the date, type of cryptocurrency, amount, and fair market value at the time of the transaction.

b. Use Cryptocurrency Management Tools: Utilize cryptocurrency management tools or software to track your transactions and generate reports for tax purposes.

c. Stay Informed: Keep up-to-date with the latest tax regulations and guidelines regarding cryptocurrency reporting.

6. Conclusion

Reporting cryptocurrency in 2018 requires careful attention to detail and adherence to tax regulations. By understanding the types of cryptocurrency transactions, tax reporting requirements, and best practices, you can ensure accurate and timely reporting of your cryptocurrency transactions.

Questions and Answers:

1. Q: What is the threshold for reporting cryptocurrency gains in 2018?

A: The threshold for reporting cryptocurrency gains in 2018 is $20,000 in a single transaction or within a 12-month period.

2. Q: Can I deduct cryptocurrency losses on my tax return?

A: Yes, you can deduct cryptocurrency losses on your tax return. However, you can only deduct up to $3,000 per year.

3. Q: How do I determine the fair market value of cryptocurrency at the time of a transaction?

A: You can determine the fair market value of cryptocurrency by using reputable exchanges, considering the market rates, and consulting with a tax professional or financial advisor.

4. Q: Do I need to report cryptocurrency airdrops?

A: Yes, you must report cryptocurrency airdrops as income on your tax return, based on the fair market value of the cryptocurrency at the time of the airdrop.

5. Q: Can I use cryptocurrency management tools to track my transactions for tax purposes?

A: Yes, you can use cryptocurrency management tools or software to track your transactions and generate reports for tax purposes, making the reporting process more efficient.