The first thing to know is that nothing matters until it comes into law. There is always speculation about what will happen based on what some financial regulators say, but no individual can redefine a property or change the tax code unilaterally, and the IRS has changed little since it first addressed cryptocurrencies in 2014.

In the United States, the IRS Declaration 2014-21 defines virtual currencies as assets. This means that anything purchased using digital currency should be taxed as short or long term capital gains depending on how long the property has been in existence.

For example, if you buy a cup of coffee using Bitcoin you bought when you were worth b 1,000, you should also calculate the price of Bitcoin at the time of coffee purchase. If you were trading Bitcoin for $ 200,200 when you bought coffee, you bought a good one worth of good with another property that is worth more in dollars than it is now. That means the amount of bitcoin you spend on coffee will be taxed according to the capital gains rules.

Cryptocurrency brokers are not required to provide customers with 1099 forms, merchants are required to disclose everything to the IRS or face tax evasion fees. Taxable transactions are as follows:

• Exchanging cryptocurrency for fiat money, or “cashing out”
• Paying for goods or services, such as using Bitcoin to buy a cup of coffee
• Exchanging one cryptocurrency for another cryptocurrency
• Receiving mined or forked cryptocurrencies

The following are not taxable events according to the IRS:

• Buying cryptocurrency with fiat money
• Donating cryptocurrency to a tax-exempt non-profit or charity
• Making a gift of cryptocurrency to a third party
• Transferring cryptocurrency between wallets

IRS issues Guidelines 2014

Many people received notices on 2017 from the IRS to pay tax on their crypto holdings. This is something many did not expect, owing to the nature of crypto due to which many assumed it was a tax haven. On March 25, 2014, the IRS issued Notice 2014-21, which, for the first time, set forth the IRS position on the taxation of virtual currencies. According to the IRS Notice, “Virtual currency is treated as property for U.S. federal tax purposes.”  The notice further added, “General tax principles that apply to property transactions apply to transactions using virtual currency.” This was the first time IRS has released guidelines on crypto and afterward has been trying to force crypto users to pay up their taxes. In order to identify users of cryptocurrencies, the IRS usually targets exchanges.

This been created a lot of confusion between people. After that many things have happened. Other countries have tried to bring some kind of tax structure to crypto. This has resulted in chaos as most countries classify crypto differently. Some countries classify virtual currencies as currencies while others classify it as a commodity. This also means that these countries apply different taxes creating a compliance nightmare for companies involved in cross border trade. Compounding to the trouble is the fact that within countries itself, regulations are almost non-existent or vague. This has led to many demanding newer regulations in order to facilitate capital flow into the industry.

Recent IRS guidelines

The IRS considers exchanging cryptocurrency for fiat money, or “cashing out” taxable money. Also, paying for goods or services, such as using Bitcoin to buy a cup of coffee will attract tax contrary to popular belief. Exchanging one’s cryptocurrency for another cryptocurrency is also taxable, and finally, one has to pay tax for receiving mined or forked cryptocurrencies. The following are not taxable events according to the IRS: buying cryptocurrency with fiat money, donating cryptocurrency to a tax-exempt non-profit or charity, making a gift of cryptocurrency to a third party and transferring cryptocurrencies between wallets.