By now, most accountants and tax professionals are familiar with the IRS’s question about virtual currency on the first page of Form 1040, and its treatment of cryptocurrency as property, with sales and exchanges reported on Schedule D. Perhaps you have even had clients bring answer “Yes” to that question on their organizer, or ask questions about their crypto-asset reporting requirements.
It’s crucial for tax advisors to get ahead of these issues, yet many aren’t aware of the reporting (and technology) challenges inherent in this new asset breed.
Overview of cryptocurrencies
In case you’ve been studiously avoiding the Bitcoin headlines recently, let’s start with a quick review of what cryptocurrency is.
Cryptocurrency is decentralized digital money designed to be used over the internet. Bitcoin and Ethereum are the most well-known cryptocurrencies, but there are thousands more out there.
The appeal of cryptocurrency is the…