Do US Ex-Pats Need to Report Crypto Gains?

United States citizens must pay taxes no matter where they live, including in other countries. To make the situation more complex, you must also report any gains on cryptocurrency, which is often confusing considering how new crypto is.

If you are a U.S. ex-pat living abroad, you must pay your federal taxes and report any gains from the sale or trade of cryptocurrency. Cryptocurrency is a relatively new kind of financial holding and is technically not currency but property. When you sell or trade crypto, you are taxed on capital gains. Exactly how those gains are taxed depends on how long you hold the crypto assets before selling or trading them. Living overseas and dealing with crypto finances can be difficult, but you generally need to report this information on your taxes if you bought or sold any crypto holdings. Many people mistakenly fail to report their crypto gains on their taxes, and a CPA experienced with ex-pat taxes can assist you.

If you live abroad and have bought, sold, or traded cryptocurrency in the last year, our team can help you properly report this information on your taxes. Call U.S. Tax Help at (541) 362-9127 today.

Are US Ex-Pats Required to Report Cryptocurrency Gains on Their Taxes?

If you are a U.S. citizen living abroad, you are still required to pay your federal taxes. U.S. taxes are not based on your location or country of residence but rather on your citizenship. As long as you maintain your U.S. citizenship while living overseas, you must complete your taxes each year. Cryptocurrency acquired abroad also must be reported.

Cryptocurrency is a somewhat new form of financial holdings that many people buy, sell, and trade. Some commonly known forms of cryptocurrency include Bitcoin, Ethereum, Tether, and Dogecoin. Any gains you make through cryptocurrency must be reported on your taxes, usually on form 8938.

You might also be paying taxes in the country where you live, which might play a role in how your U.S. taxes are assessed. Depending on your situation, you might be taxed differently by the United States if you also pay taxes in your country of residence.

Crypto is technically not money but is treated as property by the IRS for tax purposes. How cryptocurrency is taxed depends on what you do with it. Like other investments and properties, crypto does not yield any taxable gains until it is bought or sold. However, if you are paid in crypto as part of your income, that is taxable. Generally, if you sell your cryptocurrency and earn a profit, that profit may be taxed. Even if you did not sell or buy any crypto in the last year, you might still be required to report whatever cryptocurrency you have.

How Crypto Gains Are Reported for US Ex-Pats

Income from selling cryptocurrency holdings is not categorized as ordinary income but as capital gains. When you sell or trade crypto, you are taxed only on your gains. For example, if you purchased some cryptocurrency for $100 and later sold it for $250, you would be taxed only on the $150 gain, not the entire $250.

The tax rate you pay on capital gains depends on how long you hold the financial asset before making the sale. Short-term capital gains are from holdings typically held for less than one year. Short-term capital gains are taxed the same as your normal income tax. Since different people might be taxed according to different income tax brackets, the tax on short-term capital gains from cryptocurrency may vary based on your income.

Long-term capital gains are held for longer than one year and taxed at a different rate than short-term gains. Long-term capital gains are taxed according to a graduated scale that is updated or adjusted frequently. Our CPAs can help you determine the current scale used to tax your gains from crypto. Taxes on long-term capital gains are often smaller than short-term capital gains or standard income tax but depend on numerous factors, including your income, filing status, and other details.

Reporting Crypto Holdings for US Ex-Pats

Usually, ex-pats with cryptocurrency holdings have to report their holdings under the Foreign Account Tax Compliance Act (FATCA). Specifically, you must fill out a Statement of Specified Foreign Financial Assets if you acquired your crypto holdings abroad. Gains are reported when you go to pay taxes on those gains.

If you live abroad and hold accounts totaling at least $10,000, you must file under the Foreign Bank and Financial Accounts (FBAR) requirements. This requirement only applies to cash, and since cryptocurrencies are considered property, you might not necessarily have to file under FBAR. Even so, the laws surrounding crypto tend to fluctuate, and you should be prepared to file under FBAR.

When you go to file taxes, there is a new reporting mechanism for 2022 taxes and beyond. You will be asked if you received, sold, exchanged, gifted, or otherwise disposed of digital assets (i.e., cryptocurrency). You must answer yes under the following conditions:

  • You received crypto as a form of payment or for free
  • You received cryptocurrency from hard fork, an airdrop, mining, or staking
  • You sold cryptocurrency for a fiat currency
  • You traded or exchanged crypto for other cryptocurrencies
  • You traded crypto for property, services, or goods
  • You gave crypto as a gift

What if I Accidentally Failed to Report My Crypto Gains as a US Ex-Pat?

Failing to report income you earned from cryptocurrency or simply the existence of cryptocurrency is not uncommon. Many taxpayers are unsure how to report cryptocurrencies to the IRS because it is still a new and evolving field of finance.

There is a common misconception that cryptocurrency is completely anonymous and does not have to be reported. In reality, gains from cryptocurrency are taxable income, and cryptocurrency holdings might be subject to audit and reporting similar to many other financial holdings. Additionally, you have to pay income tax on crypto you receive as a form of payment for services or goods.

You might be fined for failing to report your crypto gains while living abroad. You might face fines for initially failing to report and additional fines for continuing to fail to report after the issue has been brought to your attention by the IRS.

You might face criminal charges if you cannot present some good reason why you failed to report your cryptocurrency gains. Often, the IRS is understanding of new ex-pats who have never paid taxes while living overseas. However, repeat offenders or those who refuse to correct the problem might run into serious legal trouble.

Call US Tax Help for Assistance

You are required to report your gains from crypto holdings for your U.S. taxes even if you acquired those crypto holdings in another country. Our CPAs have experience helping ex-pats with their U.S. taxes. Contact U.S. Tax Help at (541) 362-9127 today to get started.