4. The IRS categorizes crypto as property
So what do you do when you are being paid in crypto? Anytime someone is paid in property (and in the eyes of the IRS that’s what crypto is) for purposes of determining the amount of income received, the property needs to be valued at its fair market value at the time of receipt. So if you were paid 1,000 EOS today for a job, and EOS is currently at 5 USD/EOS, then the amount of revenue you need to be booking is 5000 USD.
5. If you choose to HODL, your taxes will be more complicated
If you choose to hold onto your hard earned crypto and not immediately convert it into USD, you’ll be adding a little bit of complexity to your bookkeeping as you will now need to track its basis to determine the gain/loss at the eventual sale. This means that if the 1,000EOS you previously received (when EOS was 5 USD/EOS) was held on to, and then later you sold it when EOS was back up to 15 USD/EOS, you’d have a long or short term capital gain of 15,000USD. (Proceeds of 15,000 minus Basis of 5,000 equals gain of 10,000) Note: if held less than a year it’s short term, if longer than a year the gain qualifies for the more tax favorable long term capital gain treatment.
6. Use a software to track your holdings
A quick note on holding crypto…the above example may sound easy enough to calculate, but when you a constantly adding to your crypto position or taking away from your position in smaller incremental amounts you’ve now got ongoing basis calculation issues to consider. For example, when you go to sell those 1,000EOS for 15,000USD specifically which EOS are you selling? Are you selling the ones you received when EOS was at 5USD/EOS, 10? 20? or perhaps some combination. This would result in varying gains or even potentially a loss, depending on what you were using as your basis. This can get pretty complicated pretty quickly, that’s why I highly recommend using software to track your holdings. I personally like Cointracking.info and recommend it to my clients.