Crypto taxes: an introduction

• A. Buying cryptocurrency with US dollars and holding it in a wallet
• B. Selling cryptocurrency for US dollars at a price higher than your purchase price ✓
• C. Transferring cryptocurrency between two wallets that you own
• D. Receiving a hardware wallet as a gift from a family member

Why: Selling cryptocurrency for fiat currency at a gain is a disposal that triggers a capital gain or loss. Simply buying and holding, transferring between your own wallets, and receiving a gift of a wallet are generally not taxable events.

• A. A non-taxable exchange because no cash is involved
• B. A taxable event, because it is a disposal of the first cryptocurrency ✓
• C. A tax-deferred transaction until the second coin is sold for cash
• D. Only taxable if the trade occurs on a US-based exchange

Why: In the US, the IRS treats crypto as property, so exchanging one cryptocurrency for another is a disposal of the first asset. You must calculate the gain or loss based on its fair market value at the time of the trade, even though no cash changed hands.

• A. Holding a coin for three years before selling it
• B. Receiving cryptocurrency as payment for services you performed as a freelancer ✓
• C. Transferring coins from an exchange to your personal wallet
• D. Receiving a small airdrop of tokens that you immediately hold

Why: Cryptocurrency received as payment for goods or services is taxed as ordinary income at its fair market value on the date received. Holding periods and transfers between your own accounts do not create income, and the capital gains treatment applies to later sales.

• A. Spending crypto is never taxable because it is used for a personal purchase
• B. The purchase is a disposal, so any gain or loss compared to your cost basis must be reported ✓
• C. Only purchases above $600 need to be reported
• D. The tax applies only if the merchant is located outside the United States

Why: Using crypto to pay for goods or services is treated as selling the crypto at its fair market value. You must compare that value to your cost basis to determine whether you have a capital gain or loss, regardless of the purchase amount.

• A. Selling Bitcoin for cash
• B. Mining a new coin and receiving it as reward for validating transactions
• C. Donating cryptocurrency to a qualified charity ✓
• D. Staking tokens and receiving new tokens as rewards

Why: Donating appreciated cryptocurrency to a qualified charity is generally not a taxable disposal, and it may allow a charitable deduction. Mining and staking rewards are typically taxed as ordinary income when received, and selling is a clear taxable disposal.

• A. The current market value of your crypto holdings
• B. The original purchase price of an asset plus any associated fees, used to determine gain or loss ✓
• C. The total amount of crypto you have ever received
• D. The fee charged by an exchange when you sell crypto

Why: Cost basis is generally the amount you paid to acquire an asset, including acquisition fees. When you sell or dispose of the asset, you subtract this basis from the sale proceeds to calculate your capital gain or loss.

• A. $29,900
• B. $30,000
• C. $30,100 ✓
• D. $31,000

Why: Transaction fees paid to acquire an asset are typically added to the cost basis. So $30,000 plus the $100 fee equals a $30,100 cost basis.

• A. Highest-in, first-out (HIFO)
• B. Last-in, first-out (LIFO)
• C. First-in, first-out (FIFO) ✓
• D. Specific identification

Why: FIFO, or first-in, first-out, assumes that the earliest acquired units are sold first. It is the default method in many jurisdictions when no other method is specified or documented.

• A. It determines which exchange you must use for trading
• B. It is needed to calculate capital gains or losses when you sell, trade, or spend crypto ✓
• C. It sets the maximum amount of crypto you can hold
• D. It determines the mining difficulty you face

Why: Accurate cost basis records let you calculate the gain or loss on every disposal event. Without them, you may overpay taxes or be unable to justify your reported figures if audited.

• A. Always zero, since you paid nothing
• B. Always the market value on the day you sell
• C. Generally the donor's original cost basis, subject to fair market value rules for losses ✓
• D. Always the fair market value at the time of the gift, regardless of the donor's basis

Why: In the United States, gifted property generally carries over the donor's basis (carryover basis). For losses, a different rule applies when the donor's basis exceeds the fair market value at the time of the gift, so the basis rules can be more complex than a single number.

• A. More than 30 days
• B. More than 1 year ✓
• C. More than 6 months
• D. More than 3 years

Why: Assets held for more than one year before being sold or exchanged qualify for long-term capital gains rates, which are generally lower than short-term rates. Holdings of one year or less produce short-term gains taxed as ordinary income.

• A. Long-term, because the sale occurred within the same calendar year cycle
• B. Short-term, because the holding period did not exceed one year ✓
• C. Long-term, because the sale occurred in a different calendar year
• D. Short-term, because cryptocurrency gains are always short-term

Why: The holding period runs from the day after acquisition through the sale date. Since the sale occurred before the one-year anniversary of the purchase, the gain is short-term.

• A. Bitcoin held for 18 months and then sold
• B. Ethereum held for 14 months and then sold
• C. Litecoin held for 8 months and then sold ✓
• D. Dogecoin held for 2 years and then sold

Why: Litecoin held for 8 months is under the one-year threshold, so the gain is short-term. The other three assets were each held for more than one year, qualifying for long-term treatment.

• A. Long-term gains are not reported to the IRS
• B. Long-term gains are typically taxed at lower rates than short-term gains ✓
• C. Long-term gains eliminate the need to track cost basis
• D. Long-term gains allow unlimited loss deductions

Why: Long-term capital gains rates are usually lower than ordinary income tax rates that apply to short-term gains, which can meaningfully reduce the tax owed on the same profit.

• A. The gain is long-term because the investor held the asset for most of a year
• B. The gain is short-term because the holding period was under one year ✓
• C. The gain is exempt from tax because it was held for under a year
• D. The gain is long-term if the investor reinvests the proceeds

Why: Eleven months is less than one year, so the gain is short-term and taxed as ordinary income. Holding periods must exceed one year to qualify for long-term treatment.

• A. They are not taxable until you sell the rewards
• B. They are taxed as ordinary income at their fair market value when you gain control of them ✓
• C. They are taxed only as capital gains when the rewards are sold
• D. They are exempt from tax if the tokens are held for more than one year

Why: In many jurisdictions, including the US (per IRS guidance in Notice 2014-21 and subsequent rulings), staking rewards are treated as ordinary income based on their fair market value at the time you have dominion and control over them. Any later gain or loss on sale is treated as a capital gain or loss.

• A. $0, because mining rewards are created rather than earned
• B. $10,000
• C. $20,000 ✓
• D. $40,000

Why: The ordinary income equals the fair market value of the received coins at receipt. 0.5 BTC multiplied by $40,000 per BTC equals $20,000. This becomes the cost basis of the coins for future capital gain or loss calculations.

• A. The purchase price of the mining hardware in full in the year of purchase, with no depreciation
• B. Electricity costs used to run mining equipment ✓
• C. Personal internet bills unrelated to mining
• D. The value of coins mined but not yet sold

Why: Ordinary and necessary business expenses, such as electricity used to operate mining equipment, can generally be deducted against mining income. Hardware is usually depreciated over time rather than fully expensed at purchase (though some elections may apply), personal expenses are not deductible, and unsold coins are not an expense.

• A. As ordinary income again, since it came from staking
• B. As a capital gain, because it reflects appreciation after the rewards were received ✓
• C. As a tax-free gain, because it is not cash
• D. As a capital loss, because the tokens were originally received at no cost

Why: The $500 initially taxed as ordinary income becomes your cost basis. The $200 increase in value between receipt and sale is a capital gain, taxed according to your holding period (short-term or long-term).

• A. Mining income is reported only when the coins are converted to a fiat currency
• B. Mining income is reported as ordinary income in the year the coins are received, at fair market value ✓
• C. Mining income is reported only once the coins have been held for over a year
• D. Mining income is never taxable if the miner reinvests all rewards into more mining equipment

Why: Mining rewards are generally included in ordinary income in the tax year they are received, valued at the fair market value on the date received. Reinvesting rewards does not avoid tax, and holding period rules affect only capital gains, not the initial ordinary income recognition.

• A. It is not taxable until you sell the tokens
• B. It is taxable as ordinary income at the fair market value on the date you gain control of the tokens ✓
• C. It is taxed only as a capital gain when you later dispose of the tokens
• D. It is exempt from tax because you did not pay for the tokens

Why: The IRS treats airdropped tokens received without payment as ordinary income measured by their fair market value when you have dominion and control over them. That value then becomes your cost basis for future capital gains or losses.

• A. A temporary pause in transaction processing on a network
• B. A permanent change to a blockchain's protocol that can create a new cryptocurrency alongside the original ✓
• C. A method of splitting a single coin into smaller units
• D. A type of token staking reward paid to validators

Why: A hard fork is a permanent divergence in a blockchain's rules that can result in a new coin, such as when Bitcoin Cash split from Bitcoin. Holders may receive the new coin, which can create a taxable event depending on whether they gained control of it.

• A. As ordinary income at fair market value when you gain control of the rewards ✓
• B. Not at all, because staking is considered an investment
• C. Only when you transfer the rewards to a different wallet
• D. As a long-term capital gain regardless of how long you held the tokens

Why: Staking rewards are generally treated as ordinary income when you receive them and have control over them, valued at their fair market value at that time. This value also becomes the cost basis for later sales.

• A. Because the IRS taxes all tokens sent to your wallet address, even if unclaimed, when control is established ✓
• B. Because unclaimed tokens are always taxed as a penalty
• C. Because the IRS requires reporting of every token in existence
• D. Because any token mentioned on social media is automatically taxable

Why: Tax treatment generally depends on whether you have dominion and control over the tokens. If tokens were delivered to your wallet and you can access them, the timing of income recognition can be debated, so records and professional guidance are important.

• A. Only the final sale price of the tokens
• B. The date you gained control of the tokens and their fair market value on that date ✓
• C. Your social media posts announcing the airdrop
• D. The total number of coins you own across all exchanges

Why: To report ordinary income and establish cost basis, you need the date control was gained and the fair market value at that time. Without these records, it is difficult to calculate gains or losses accurately when you sell.

• A. Exchanges require proof of transaction history before allowing withdrawals
• B. Accurate records are needed to calculate capital gains and losses for tax reporting
• C. Blockchain networks will delete old transaction data after one year
• D. Tax authorities only accept records that were printed on paper

• A. Only the name of the cryptocurrency purchased
• B. The date, amount, fair market value in fiat currency at the time, and the purpose of the transaction
• C. Only the wallet address of the recipient
• D. The exchange's customer service phone number

• A. It is the total number of coins a person owns
• B. It is the original value of an asset used to determine gain or loss when it is sold or exchanged
• C. It is the fee charged by the exchange for each trade
• D. It is the current market price of the cryptocurrency

• A. To automatically hide transactions from tax authorities
• B. To avoid having to report any crypto activity
• C. To aggregate transactions across multiple exchanges and wallets and help calculate gains and losses
• D. To increase the value of their holdings through automated trading

• A. Holding a single coin in one hardware wallet with no transactions
• B. Moving coins between several exchanges and personal wallets without documenting the transfers
• C. Recording every purchase in a dated spreadsheet
• D. Downloading annual transaction statements from a single exchange

• A. Form 1099-INT
• B. Form 8949 ✓
• C. Form 1040-ES
• D. Form 941

Why: Form 8949 (Sales and Other Dispositions of Capital Assets) is where individual crypto sales and exchanges are itemized, with the totals then carried to Schedule D. Form 1099-INT covers interest income, Form 1040-ES is for estimated tax payments, and Form 941 is an employer payroll form.

• A. A
• B. B ✓
• C. C
• D. D

Why: Placeholder explanation

• A. A
• B. B ✓
• C. C
• D. D

Why: Placeholder explanation

• A. A
• B. B ✓
• C. C
• D. D

Why: Placeholder explanation

• A. A
• B. B ✓
• C. C
• D. D

Why: Placeholder explanation