Did You Sell or Spend Bitcoin in 2020? Here’s What You Need to Know About Taxes

As you can probably imagine, if you use bitcoin to pay for goods and services regularly, this can get rather complicated. Especially if you bought bitcoin on various dates for different prices. Now, the IRS isn’t likely to track you down and audit you if you buy a $2 soda with bitcoin you paid $1 for. But if you make any substantial purchases with appreciated bitcoin, be sure to keep track and report them.

If you mined bitcoin, you could also have a taxable gain. And this is even true if you haven’t sold or spent any of the digital currency you mined.

Specifically, when you mine bitcoin, its fair value on the date you mine it is considered to be taxable income. For example, if you mine $50 worth of bitcoin today, you’ll add that to your taxable income for the year. When you eventually sell or otherwise dispose of it, this is also the reference price to determine if you have a taxable gain or loss.

Obviously, there are more possible situations involving bitcoin and other digital currencies than I can cover in a single article. For example, if you mine bitcoin as your primary business, do you also have to pay self-employment tax on the value of the mined cryptocurrency? What if you run a business and a customer pays you with bitcoin, which then grows in value?