A visual representation of the digital Cryptocurrency, Bitcoin alongside US Dollars on December 07, 2017 in London, England. Cryptocurrency is riding high these days.

But even as more investors are taking a chance on new currencies like Bitcoin, Ethereum, and Ripple, many are still confused about how to treat it for federal income tax purposes. In 2014, the Internal Revenue Service (IRS) issued guidance to taxpayers (downloads as a pdf) making it clear that virtual currency will be treated as a capital asset, provided they are convertible into cash. In simple terms, this means that capital gains rules apply to any gains or losses.

But taxes are rarely simple. Things can get complicated very quickly.

Here are the basics: I know, the basics aren’t quite so basic. Here’s a deeper dive into some of the more complicated bits: For tax and accounting purposes, capital gains and losses are calculated by determining how much your cost basis has gone up or down from the time you acquired the asset (in this case, cryptocurrency) until there’s a taxable event.

Basis is, at its most simple, the cost that you pay for assets. The actual cost is sometimes referred to as “cost basis” because you can make adjustments to basis over time. Read more from forbes.com…

thumbnail courtesy of forbes.com