Cryptocurrency has become one of today’s hottest investing buzzwords, seemingly giving people the chance to make money out of thin air. But what is cryptocurrency, and how do you decide if it’s a good investment choice? While this is a complex topic that can be difficult to understand, the guide below will help you get a handle on this technology and how it can impact your income tax prep.

What Is Cryptocurrency?

In its most basic form, cryptocurrency is a way for people to send money to one another without going through a bank or other third party. The transactions are completely encrypted, giving both the giver and receiver security against fraud, overdrafts, or bounced checks. Like any other commodity, cryptocurrencies can grow in value if the demand is higher than the supply, making it a potentially lucrative investment opportunity.

How Do You Buy It?

The easiest way to buy and sell cryptocurrency is through websites like Coinbase®, which operate much like a brokerage account. However, the market is extremely complicated, so you should talk to an expert or two before putting your money into this emerging technology. As with any other investment, it’s much easier to lose money than to make a fortune.

How Does It Affect Your Taxes?

Cryptocurrency might be used as a form of cash, but the IRS considers it an asset, much like stocks or bonds. If you’ve made a profit on cryptocurrency, you’ll have to report the gains on your taxes and prepare your own 1099 forms. After investing, you should talk to an income tax prep professional about filing your returns.

Whether you’re just getting into cryptocurrency or have a variety of investments, ZP Tax has the expertise to handle every aspect of your income tax prep. From their offices in Montgomery County, MD, they provide solutions tailored to the unique needs of their clients, with the expertise to minimize the stress of filing your taxes. Visit their website for more on their services, or call (301) 587-4829 to speak with an income tax prep professional.