Year end tax planning tips for cryptocurrency investors located in the U.S.:
If you are doing multi cryptocurrency trading, please keep in mind exchanges between different cryptocurrencies are a taxable event, as if you had sold the first cryptocurrency (in most cases BTC) and then used the sales proceeds to buy the second cryptocurrency. There is no tax deferral or like-kind exchange treatment allowed for exchanges between cryptocurrencies.
Please make sure to keep detailed records of all your cryptocurrency purchases, transfers, and sales, as well as all the income you received in cryptocurrency. Otherwise you will get in trouble if you get an audit from IRS for your tax return.
For any cryptocurrency you received due to commission, mining, sale of product or service, you need to recognize income on the day you received the cryptocurrency based on the fair market value of that cryptocurrency in USD for that day. Again, record keeping is critical.
If you plan to hold some cryptocurrency long term and pass it to your children/family members, take advantage of the annual gift tax exclusion (currently at $14,000) to minimize your gift tax liability, and transfer the cryptocurrency by December 31. Make sure to keep a record of what cryptcurrency, how much, your cost basis, the date of gifting, and to whom.
There are many things you need to consider when it comes to taxes. Just want to share a few helpful tips here. This is not a tax advice. Please always consult your tax advisor for your specific situation.