cryptocurrencies—at least until the Internal Revenue Service clarifies how the hell it intends to tax them. Navigating the legal gray areas left by today’s rules can be a bit like wandering through a minefield.
The lack of guidance isn’t new. But now that cryptocurrency has gone mainstream, thanks to the initial coin offering boom and the Great Bitcoin Bull Run of 2017, there’s a lot more money on the line—and far more confused cryptocurrency userscryptocurrencies are considered property, which makes them subject to capital-gains and income taxes. Buying and holding cryptocurrency is not a taxable event. But if you use digital coins to buy anything—even just a cup of coffee—after your holdings have increased in value, you’ve experienced a gain, and that’s taxable. So for every purchase, you must report the amount you spent and the difference between the currency’s value when you spent it and the value when you first got it. If you came out ahead, you have to pay tax. Fun.