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Denver Tax Return: Cryptocurrency Things To Know

February 19, 2021

Technology advances have led to a rise in cryptocurrency, online financial transactions, and other monetary accumulation methods. With the touch of a button, individuals can transfer funds from one person to another, purchase items, and more with applications such as Venmo and Paypal. These systems are more similar to traditional banking institutions or credit cards but another item is growing in popularity and peaking interest across the globe.

Cryptocurrency has multiple forms but some of the most popular include - Bitcoin, Ethereum, Ripple XRP, Litecoin, Dogecoin, and others. It’s merger into the mainstream has become so commonplace that at least one professional sports athlete even had his contract arranged to be paid in such a manner. These changes, coupled with more and more use, has led the Internal Revenue Service (IRS) to alter their approach in order to track such transactions.

What It Is

In short, these items are a digital currency which is not backed by any institution but more of a person to person financial system. Organized online through a blockchain, computer code of transactions, these differ from dollars and cents in that there is no central authority - bank, federal reserve, or other system which is responsible for maintaining its value. Don’t get it wrong, there is value here but it is more determined by the use and frequency of people being able to own or acquire these types of currency.

Tax Impact

However, just because there is no backing agency, the IRS requires digital transactions be tracked, reported, and taxed. Comparable to short or long-term gains, the cryptocurrency popularity rise is currently being viewed as an investment. For example, if you acquired a cryptocurrency and then use it to purchase an item in the future, the tax rate would be determined depending on the length of time between getting the currency and transaction. While this may appear to be a simple exchange, the IRS doesn’t recognize cryptocurrency in the same manner as the US dollar and thus you either had a gain or loss - depending on the difference - which must be reported.

Understanding capital gains and losses, the associated tax rates, and other intricacies can really help to mold your cryptocurrency transactions in order to receive the best tax benefits possible. 

Should you need help determining the implications of cryptocurrency on your taxes, are in search of answers to other tax related questions, or need to file a return then let the tax professionals at Bloch Rothman and Associates assist you today. In addition to providing solutions, they can also take care of multiple other issues dealing with paying or owing back taxes, required audits signaled by either the IRS or an outside agency, or any other personal or corporate wealth management issues. Along with providing a top quality tax service, our group can also complete all types of returns and get answers to any other factors associated with financial issues or concerns you may have. Serving Denver and all of the surrounding areas for 35 years, our firm has an extensive history in helping clients with any and all of their tax issues or dealings with the Internal Revenue Service. If you have questions about your personal, business, estate, or any other filings, don’t hesitate to contact us today. Available for all of your tax needs, there are also a number of bookkeeping and payroll services offered to assist you and your business. We look forward to meeting you and providing the type of service you can rely on whatever your needs may be very soon!