As a reminder, all worldwide income is taxable in the US, including income from virtual currency.

Virtual currency is a digital representation of value. Issued by private parties, such as a group of developers or organizations, digital currency is intended only for online use only because they do not have a physical incarnation like paper money. Examples of virtual currency are Bitcoin, Ethereum and Litecoin. Many cryptocurrencies are widely available on online cryptocurrency exchanges, such as Coinbase or Gemini.

Everyone must answer the question on the front of the 1040 return whether they received, sold, exchanged or disposed of virtual currency during the year. Transactions include: receipt or transfer of virtual currency for free; exchange of virtual currency for goods or services; a sale of virtual currency; an exchange of virtual currency for other property (including another virtual currency); a disposition of financial interest in virtual currency.

There are some places where virtual currency operates as “real” currency, but in the US, it does not have legal tender status. Cryptocurrency exchanges do not issue tax forms. Therefore, taxpayers should obtain their transaction history reports for cryptocurrency investment accounts held in cryptocurrency exchanges to determine if there are taxable transactions to report. In the US, virtual currency is treated as property, like gold or stocks. In 2023, the US will start to require more reporting for virtual currency. As virtual currency continues to become more popular, expect US tax laws that apply to it to be subject to change and/or reinterpretation.