Crypto-currencies have seen dramatic increases in value, and a lot of early adopters are tech-savvy nerds more interested in blockchain transactions and mining protocols than financial investment strategies.  This can leave a lot of people with unforeseen tax liabilities when they cash out or try to move crypto-currency around.

The US tax policy for crypto-currency may be in flux, but basically Bitcoin and other altcoins are treated as investments that show a capital gain when exchanged.  This means when you perform a transaction with Bitcoin, whether you’re cashing out US dollars, buying a pizza, or trading one crypto-currency for another, you may owe tax on the capital gains at the time of the transaction.  Technically, if you bought into Bitcoin at $1 and use some to buy a $20 pizza now, the 0.003 Bitcoins you spend on the pizza count as a taxable event and you owe capital gains on the $20 (well, technically only on the gain, which would be $20 minus the third of a penny that amount of Bitcoin originally cost you).

For example, see the story about one early investor who did well with an Ethereum investment and then diversified his assets without realizing converting the Ethereum to other crypto-currencies counted as a gain.

Leave a comment