Interested in Cryptocurrency? Heard of it but don’t know where to begin or how it might affect you? Cryptocurrency or crypto is probably something everyone is vaguely familiar with. At least most media outlets have discussed the terms along with the big businesses dedicated to cryptocurrencies like Bitcoin, Coinbase, Voyager, and BlockFi to name a few. This industry is ever-changing, and new currencies like this are making a big hit. So what does this mean for taxes and accounting?
Investing in cryptocurrency is popular and becoming more popular as the world changes. It became an interest when the world crashed in 2020 and continues to pique interest. From 2022 and here on out, the IRS expects individuals and businesses to report on their transactions with crypto whether it’s selling, exchanging, investing, etc. This will affect their earned income and could make a big difference in tax brackets, deductions, etc.
Non-fungible tokens (NFTs) or digital assets include transactions of goods, services, or anything in a digital sense. We’ve discussed previously how important record-keeping and transaction tracking are for your taxes. Cryptocurrencies are no different. Since the IRS has a special set of rules with this new currency, it’s even more important to dedicate time to your taxes and transactions. Record-keeping will be additionally important because you or your accountant will need to see the selling, investing, and exchanging transactions and how those may affect your capital gain or loss. This can determine if an individual will owe the IRS or if the IRS may audit you or your business.
So now that we’ve discussed some of the “what is” of cryptocurrency, now it’s time to discuss some of the terminologies to better familiarize us with it. These terms are designed to help individuals as they consider investing, selling, or exchanging virtual currencies.
Blockchain is a version of transaction-keeping where individuals involved with cryptocurrencies keep track via computers in a peer network.
Stalking is a type of consensus mechanism where individuals contribute their cryptocurrency earnings within the blockchain network and gain rewards.
Lending is just like lending someone money, but with cryptocurrency.
Mining is a type of consensus mechanism that cryptocurrencies use to generate new coins and then verify them via the blockchain network.
A hard fork is when a cryptocurrency undergoes a protocol change with a permanent diversion from its original ledger.
A soft fork is when a cryptocurrency undergoes a protocol change that does not result in a diversion and doesn’t result in a new cryptocurrency.
The term digital wallet is something most of us are more familiar with as credit cards, Venmo, PayPal, and others have electronic platforms. Cryptocurrency also has existing platforms such as CoinTracker or ZenLedger; however, these platforms are used to help those individuals involved with crypto manage their finances.
Even with knowing these terms, it’s still a challenging new area for businesses and individuals. As the world changes and technology increases, we can all help each other learn and grow. If you’re investing, selling, or exchanging cryptocurrencies, feel free to give us a call or set up an appointment. We’d love to chat and get you taken care of.
