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This past fall, the IRS sent letters to over 10,000 cryptocurrency owners who may have neglected to pay taxes on the virtual investments or have failed to report income and pay taxes on Bitcoin or other cryptocurrency transactions.
Some cryptocurrency investors might not be aware of these tax implications when they initially invested in cryptocurrencies such as Bitcoin.
The IRS treats cryptocurrency similar to property for tax reporting purposes: the sale or exchange of tokens is a taxable event.
Most trades count as short-term capital gains, which can be taxed at as high as 39% depending on income bracket. Those who hold bitcoin for more than a year and then sell it, however, are only liable for a long-term capital gains tax, which is levied at a significantly lower rate of 15% to 23.8%.