Yes. In 2014, the Internal Revenue Service (IRS) clarified that cryptocurrency (e.g., Bitcoin, Ethereum, Ripple, Tether, Stellar, Cardano, etc.) will be treated as a capital asset, and that capital gains rules shall apply to any gains or losses of such currency. The IRS released further guidance on taxation of cryptocurrency in 2019.

Generally, people either hold cryptocurrency like an investment (treating it like stocks, bonds, or mutual funds); spend cryptocurrency like cash in purchases of goods, services, or other digital assets; or receive it as compensation, interest, or gifts (wages, mining, staking, airdrop, nodes, liquidity pools, etc.). All these uses of crypto raise different tax implications for you to address.

Crypto is treated like property you own, much like owning a house, a car, stocks, farm animals, or business machinery. As a result, you will incur a gain or a loss when you sell or exchange each individual crypto asset you own. To calculate your gain or loss, you need to know:

• Your crypto’s selling price in U.S. dollars, even if you converted it into other foreign currency (fiat)
• The exchange value (in U.S. dollars) of your crypto on the day you exchanged it for other crypto
• The value of your crypto on the day you bought or acquired it (your basis)
• How long you have owned each crypto (your holding period)
• Relevant allowable additions or deductions from basis that apply to crypto (adjusted basis)

Crypto gains will be taxed based on your overall income bracket. Your losses are deductible, subject to the limits on capital losses.

When you receive crypto in exchange for your services or goods, you report that crypto as ordinary income. Where to report that income differs by whether the crypto counts as wages or as income to a business. Additionally, you will also have capital gains/losses depending on your holding period.

If you are self-employed or an independent contractor, your crypto income will be subject to self-employment tax. Also, if you pay employees using crypto, the wages paid are subject to Federal and State income tax withholding, Medicare and Social Security tax withholding (FICA), and Federal Unemployment Tax Act (FUTA). Such wages must be reported on Form W-2. You may also have to pay state sales taxes if you meet the applicable conditions.

If you mine cryptocurrency as your main source of income or produce cryptocurrency/digital assets as inventory for sale in a business, you report income on your business tax return (Schedule C, 1065, or 1120) and can deduct qualifying ordinary and necessary expenses against such income.

Taxable events are triggered every time you sell, trade, or spend crypto. Sometimes when you receive crypto (airdrops, staking, interest, etc.) you also have a taxable event and ought to report your capital gains/losses from such activity.

Depending on your peer network, it is easy to convince yourself that no one files crypto taxes. You may even know that the IRS has done crypto audits on some people but still feel anonymous and unreachable. The crypto space is not the only arena where social proof and overconfidence has led people astray. Still, more people are filing crypto taxes to focus on managing their investments without the distraction of a looming IRS or State tax audit. Indeed, reconstructing and reconciling multi-year crypto transactions under a tight audit deadline can be time consuming, expensive, and stressful.

Additionally, the most engaged crypto investors are still plagued with lack of accurate crypto exchange reporting across platforms. They find the tax preparation process to offer them the most complete and accurate picture of their crypto holdings.

DIY software may be sufficient if you have a low volume of unsophisticated transactions on a single exchange. As your transactions divert from this simple scenario, you need to be mindful that while tech solutions can simplify hard or repetitive tasks, they are also great at amplifying systematic mistakes. Garbage into your tax software will lead to garbage out to your tax return. Blockchain technology, crypto assets, and consumer behavior evolve very fast with increasing complexity.

DIY software doesn’t always adapt in a timely manner to support all changes, and it can get worse for you when DIY software and its support staff are not knowledgeable in U.S. tax regulations. It becomes vital for you to hire a knowledgeable crypto tax preparer to navigate you through the complexity of crypto tax and the gaps inherent in crypto tax software. Maintaining an ongoing relationship with the same tax preparer also spares you the headache of annually starting over with a new “full service” tech support person at DIY software firms.