Thinking Of Investing Your Stimulus Check In Crypto? Here’s What You Should Know

In an effort to combat economic hardships faced by Americans due to COVID-19, the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act has introduced several forms of tax relief. Chief amongst them are economic impact payments to taxpayers. Basically, many individuals will receive free money from the government to cover their expenses during this difficult time; there are no restrictions on how this funds should be spent.

The amount taxpayers will receive is based on their adjusted gross income (AGI) on their most recently filed tax return. You can use this calculator to estimate your stimulus check amount. These checks are expected to arrive in April and the funds are not taxed.

Some in the crypto-community have discussed investing their stimulus checks in cryptocurrency. If you plan to invest your stimulus money into crypto, you will need to keep good records. Cryptocurrencies are treated as property per IRS guidelines. This treatment requires you to keep good records of the “cost basis” — how much you paid for cryptocurrencies when you bought them. This is a time consuming and tedious task, especially if you purchase different cryptocurrencies at various times.

For example, assume Nancy receives a $1,200 stimulus check on April 10th. She purchases 0.1 bitcoin (BTC) on April 15th and 0.1 ether (ETH) on April 20th. Assume the USD price of 1 BTC and 1 ETH are $6,000 and $500 on these respective days. Her cost basis for 0.1 BTC is $600 ($6,000*0.1) and for 0.1 ETH is $50 ($500*0.1). Nancy needs to keep detailed records of her purchase history and how she arrived at her cost basis as calculated above for tax purposes.

Keeping accurate records of the cost basis is important because it has a major impact on your future taxes. When you sell cryptocurrency, it triggers a taxable event based on the cost basis information of your historical purchases. Detailed records are needed to accurately calculate the resulting gains and losses and…

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