Sydney bought cryptocurrency and then converted some to dollars, sold some, exchanged her Bitcoin for Ethereum, and used some to buy a plane ticket. Which actions involving cryptocurrency does Sydney need to report to the IRS for tax purposes?

Question

Only converting the cryptocurrency to dollars
All actions except the original purchase of cryptocurrency
Only selling some and buying the plane ticket
All of the transactions where she made money

Answer 1

For tax purposes, Sydney needs to report all actions except the original purchase of cryptocurrency. Specifically, the IRS requires taxpayers to report:

1. Converting cryptocurrency to dollars (this is a taxable event).
2. Selling cryptocurrency (this is also a taxable event).
3. Exchanging Bitcoin for Ethereum (this is a taxable event, even if there is no cash involved).
4. Using cryptocurrency to buy a plane ticket (this is considered a sale for tax purposes and may also be a taxable event).

The original purchase of cryptocurrency does not need to be reported since it does not trigger a taxable event until Sydney sells or exchanges her cryptocurrency. Therefore, the correct answer is that all actions except the original purchase of cryptocurrency need to be reported to the IRS.