Several new tax laws have gone into effect this year, but they will not apply to one's 2017 tax return. For example, how cryptocurrency -- such as Bitcoin -- is taxed and at what rate will be changing under the new law. For the current tax season, here are some things Connecticut residents needs to know about declaring cryptocurrency on their taxes.
First and foremost, it is not always necessary to declare cryptocurrency investments on one's taxes. It is really only necessary if one has experienced a realized capital gain or loss. When it comes to cryptocurrency, a realized capital gain or loss refers to either buying more, selling or using the currency to buy goods or services. It is not in reference to value gained or lost due to market fluctuations.
Long-term gains may be taxed at a rate of 0 to 20 percent; whereas, short-term gains may be taxed at one's regular income tax rate. Those who end up losing money may be able to claim the loss as a deduction. For 2017 tax filings, the deduction may be up to $3,000 for single filers or $1,500 for those who are married but filing separately. It may not seem like a lot, but it can help offset one's taxable income.
There is a lot more that can be said regarding cryptocurrency and how it may affect one's income tax return. Those who make mistakes in reporting this income may face some serious consequences that could cost them dearly in the long run. An experienced tax law attorney can assist Connecticut residents who need help figuring out how taxes on their cryptocurrency investments need to be handled, or can help those who end up being audited due to errors in declaring or failing to declare such income.
Source: Forbes, "What You Need To Know About Taxes & Cryptocurrency", Kelly Phillips Erb, Accessed on Feb. 2, 2018