In recent years, there has been an increase in efforts by governments to introduce new tax laws to regulate the cryptocurrency market. The US Internal Revenue Service (IRS) has released reporting requirements and obligations applicable to crypto investors and traders.

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The first notable change in the crypto tax laws in the US was the debut of the new virtual currency “Form 1040 Schedule 1” in 2019. This form requires taxpayers to reveal if they owned, previously owned, or sold any form of cryptocurrency in the tax year. Taxpayers must report all their crypto activities, even if there is no yearly transaction activity. Such reporting includes all income, gains, losses, and expenses relating to the virtual currency.

The tax liability per cryptocurrency transaction can be very high in some instances. For example, tax losses realized from cryptocurrency trading cannot be combined with other tax losses on standard income tax returns. As such, cryptocurrency investors must set aside sufficient cash to cover their potential tax liabilities. Any taxes due must be paid in a fiat currency such as USD or CAD.

Cryptocurrency investors should also be aware of the different kinds of taxes applicable to their digital assets.

Being aware and up to date with all laws and legal traps can have huge ramifications. This is why investors should consult a knowledgeable crypto tax advisor Highlands Ranch area specialist before entering the cryptocurrency market or trading virtual currency. A skilled, experienced advisor can help identify potential legal issues and advise on strategies for minimizing tax liabilities.