CCA Cryptocurrency Taxation & Accounting 1 — Questions and Answers
Question 1: How does the IRS classify cryptocurrency for federal tax purposes in the United States?
- As currency
- As property (Correct answer)
- As a commodity
- As a security
Correct answer: As property
The IRS classifies cryptocurrency as property under Notice 2014-21, meaning general tax principles applicable to property transactions apply.
Question 2: What type of income is recognized when cryptocurrency is received as payment for goods or services?
- Capital gain income
- Passive income
- Ordinary income (Correct answer)
- Tax-exempt income
Correct answer: Ordinary income
Cryptocurrency received as payment for goods or services is treated as ordinary income equal to its fair market value at the time of receipt.
Question 3: Which cost basis accounting method allows taxpayers to minimize capital gains by designating specific lots of cryptocurrency to sell?
- FIFO
- LIFO
- Specific identification (Correct answer)
- Average cost basis
Correct answer: Specific identification
Specific identification allows taxpayers to designate exactly which units of cryptocurrency are being sold, giving maximum control over taxable gain calculations.
Question 4: Which of the following events does NOT trigger a taxable event for cryptocurrency?
- Selling cryptocurrency for fiat currency
- Trading one cryptocurrency for another
- Transferring cryptocurrency between your own wallets (Correct answer)
- Receiving cryptocurrency as payment for services
Correct answer: Transferring cryptocurrency between your own wallets
Transferring cryptocurrency between wallets you own is not a taxable event because there is no change in ownership or realization of gain.
Question 5: What is the minimum holding period required for cryptocurrency gains to qualify as long-term capital gains in the US?
- 6 months
- More than 1 year (Correct answer)
- 2 years
- 18 months
Correct answer: More than 1 year
Cryptocurrency held for more than one year qualifies for long-term capital gains tax rates, which are generally lower than ordinary income rates.
Question 6: How are cryptocurrency mining rewards taxed when first received by a US taxpayer?
- As long-term capital gains
- As ordinary income at fair market value (Correct answer)
- Not taxed until sold
- As short-term capital gains
Correct answer: As ordinary income at fair market value
Mining rewards are taxed as ordinary income at their fair market value when received and may also be subject to self-employment tax for miners operating as a business.
Question 7: Which IRS form is primarily used to report capital gains and losses from cryptocurrency disposals?
- Schedule C
- Form 1099-K
- Form 8949 and Schedule D (Correct answer)
- Form W-2
Correct answer: Form 8949 and Schedule D
Capital gains and losses from cryptocurrency disposals are reported on Form 8949 with details of each transaction, then summarized on Schedule D of Form 1040.
CCA Cryptocurrency Taxation & Accounting 1
How does the IRS classify cryptocurrency for federal tax purposes in the United States?