Cryptocurrencies have grown from a mysterious venture to a widespread means of investing or even paying for services and goods. Yet even though many people buy, sell and use cryptocurrencies for various transactions, their regulation is still in a grey area regarding taxation and reporting.
The confusion about this is especially felt during the tax season. 1stopVAT has received many questions on reporting cryptocurrency transactions in tax returns. Below, you will find helpful information for various types of crypto interactions.
Tax for buyers or sellers of cryptocurrency
The sales tax in most of the US is still closely related to sales of tangible goods and excludes sales of services. However, many states have implemented changes in recent years regarding services taxation, especially digital products and services. Therefore, only some states have ruled that digital services and cryptocurrency purchases are subject to the sales tax, while others remain with the older regulation, focused on tangible items.
If you want to learn about each state’s taxation rules for crypto, we suggest looking for the state’s guidelines on the taxation of digital goods, as there are almost no crypto-specific regulations yet.
Cryptocurrency as a payment for goods
Some forward-looking stores already allow customers to pay for goods in virtual tokens. This might simplify interactions for people relying on decentralized finance yet brings some confusion to the sellers when the time to do the taxes comes. The main issue with such transactions is whether the sales tax should be calculated in cryptocurrency or dollars.
Like other cryptocurrency regulations, the sales tax calculation rules also vary state-by-state. For example, New York has implemented the procedure when the seller calculates the sales tax based on the digital currency’s market value. In such cases, the sales tax on the receipt should be put in the cryptocurrency value, not dollars. For such kind of sales tax accounting to go well, companies must keep precise records of the digital token value at the time of purchase.
A different example is Washington. The state has simplified the sales tax records by stating that the sales tax should be calculated by looking at the item’s value in dollars. In such a case, VAT reporting is also made in dollars.