Georgia residents who are involved in the cryptocurrency market may find their tax filings more complex as the IRS has made efforts to tax crypto income. In Novemeber 2017, the IRS was victorious in a case against Coinbase, a cryptocurrency exchange. As a result of the case, the exchange was required to provide information on more than 14,000 people who traded cryptocurrency between 2013 and 2015. During that period, only 800 to 900 people each year reported capital gains from cryptocurrency investments.
There are three ways the IRS will collect taxes based on cryptocurrency trading. First, those who own cryptocurrency will be liable for increases in the value of the virtual coins. Depending on how long the virtual coins are owned, the taxpayer may be liable for short- or long-term capital gains taxes when the coins are sold.
The IRS may also tax individuals for capital gains if their virtual coins are exchanged for goods or services, rather than sold outright. If a person invests in cryptocurrency and then uses it to make a purchase, the IRS may seek to tax the person if the crypto increased in value during the time the person owned it. Those who mine cryptocurrency, too, can expect to pay taxes on the coins they mine.
In a case where an individual has questions about the likely taxation of cryptocurrency assets, an attorney might examine the client's purchase and sale history and provide guidance as to the tax treatment of the assets involved. An attorney may communicate with the IRS on the client's behalf or advise the client regarding actions that may reduce or eliminate tax liability.