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February 23, 2018 -- ADVFN Crypto NewsWire -- Around 900 U.S. taxpayers reported bitcoin profits and paid taxes on those profits to the IRS for tax years 2012 through 2016. That number will be dwarfed by the number of U.S. taxpayers reporting cryptocurrency profits on their 2017 tax return.

Coinbase has issued a 1099 to customers who sold more than $20,000 on the exchange in 2017. No other exchange is yet issuing 1099 forms, so self-reporting is required by the IRS for traders on all other exchanges for tax year 2017.

The IRS treats a cryptocurrency purchase as a type of property purchase, the same as a stock or real estate purchase. So, if you bought bitcoin or ether and held all of it, you do not need to report anything to the IRS. But, if you sold any cryptocurrency purchase at a profit, taxes are owed on that profit.

If the price went up, it's a capital gain. If the price went down, it's a capital loss on which the IRS allows a deduction of up to $3,000 per year. You can deduct a cryptocurrency loss from your ordinary taxable income to reduce your tax bill or increase your refund.

Capital gains can be either short-term or long-term. Profit on an asset that you sold after holding it for more than 365 days is a long-term capital gain and subject to 15% U.S. federal tax. Profit on an asset that you sold after any shorter amount of time is a short-term gain and is taxed the same as the rest of your ordinary income.

If you paid an employee wages in bitcoin in 2017, you must report those employee earnings to the IRS on a W-2 form. If you paid a contractor or freelancer with cryptocurrency, you must send the contractor a Form 1099.

Net income from cryptocurrency mining must be reported to the IRS as gross income. This is done by subtracting total 2017 mining costs from the sum total of the fair market dollar values of each coin earned on the day each coin was mined.

If you acquired any crypto from an airdrop or bounty, you probably owe taxes on the entire amount. This gets quite complicated, so consult a tax professional to determine whether you should pay regular tax or capital gains tax or a mix of the two taxes on your airdrop or bounty crypto.

ICO's do not fall under the IRS's tax-free treatment for raising capital. ICO income is considered to be ordinary taxable income for both individuals and businesses.

The best way to minimize your crypto trading tax bill is to buy and hold for more than 365 days. Just one more reason to HODL, though, given the volatility, it might still be in your best interest to lock in the profit now and take the tax hit.

By: BGN Editorial Staff