Although cryptocurrencies are nothing new, 2017 saw more mainstream investors buying in — and cashing out.

Now they could be staring down some major tax liabilities. But how tax laws apply to virtual currencies like bitcoin and ethereum is still a gray area that confuses people.

"I think a lot of people who got in to cryptocurrency maybe didn't even think about the tax implications," says Janna Herron, a tax researcher and writer at Value Penguin.

The Internal Revenue Service says virtual currency transactions are taxable by law. The agency issued its first and only guidance on how tax principles apply to transactions using cryptocurrency in 2014.

"The one notice is considered tax authority," says Sarah-Jane Morin, an attorney in the tax practice group at Morgan Lewis. "It isn't as binding as regulations, but it is all we have to go on."

The guidance says that for tax purposes, cryptocurrencies should be treated as property, not currency. And cryptocurrencies, in this guidance, include anything that is considered a "convertible virtual currency," which means it has an equivalent value in real currency or acts as a substitute for real currency. Not all cryptocurrencies act this way, but most of the major ones, like bitcoin, do.

"Some people with bitcoin may think of it as dollars or cash," says Morin. "But for IRS purposes it should be treated as a house, stocks, bonds. You have to look at the general tax principles that apply to property and how it impacts your gains or losses."

Basically, if you bought bitcoin and haven't sold, you haven't realized any gain. You probably don't have any reporting obligations.

But if you sold bitcoin — or any other cryptocurrency — in the last year, you'll need to report the gains and losses. Here's how.

1. Reporting is on you

"Usually on sales of stocks or bonds, your brokerage firm or bank will send you a 1099 tax form," says Herron. "That's not the case for all crytpo-exchanges or most transactions."

Coinbase will only issue the statement if you've realized $20,000 in gains and had at least 200 transactions.

It is a high bar designed for major players, not your casual investor who wandered into bitcoin recently.

"What that means is the onus is on you to figure out the tax obligations," says Herron.

2. Crypto as property

Since the IRS determines cryptocurrencies to be property, like stocks or real estate, you'll need to pay taxes if you've realized a capital gain and you can lower your tax bill if you've taken a loss.

You'll need to gather the following information: 1) when you bought the crypto, 2) how much you paid for it, 3) when you sold it, and 4) what you received for it.

"I don't think the average person realizes that they needed to track their basis," says Morin, which is the original value of an asset for tax purposes.

Usually the basis is the the purchase price, but it is adjusted for things like splits, dividends and return of capital distributions. You'll need the basis to determine the capital gain, or the difference between the asset's cost basis and the current market value.

This can become very confusing if you made various purchases at different times. "Generally, you want to apply a "first in, first out" principal," says Morin.

Alternatively, you could use websites aimed at helping bitcoin investors determine their tax liabilities. Bitcoin.tax and Cointracking.info will help you figure out your transaction history, how much you owe and how to fill out the Schedule D (1040) form for reporting capital gains or losses.

3. Don't hide trades

It may occur to you that if no one is reporting your captial gains to the IRS, no one really knows about your investments.

"It is never a good idea to try to skip out on your taxes," says Herron. "You really don't want to hide anything from the IRS. In the future they may discover that you owe, there will be penalties and fines involved in that."

Even though the notice on cryptocurrencies is guidance and not regulation, it does comment on penalties.

"It says that taxpayers may be subject to penalties for not reporting," says Morin. "The best way to avoid penalties is to do the best you can with the reporting. That will show that you didn't have a willful intent to avoid taxes."

In some extreme situations, "taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions," the IRS said in a statement released Friday.

And the penalties are steep: anyone convicted of tax evasion, for example, is subject to a prison term of up to 5 years and a fine of up to $250,000.

4. Keep a log

This year you may be stuck with a suboptimal situation in which you're looking through receipts and statements and emails trying to get all your information together.

"Going forward, it would probably be easier to keep detailed records of what you bought and when you bought it," Morin says.

In addition to keeping records of your virtual currency transactions, it's a good idea to set aside money each time you make a taxable trade to compensate for the tax associated with that transaction.

No one is going to tell you to do it, but you'll be responsible for the consequences if you don't.

"Go with the idea that it will be up to you and you need to keep those records to stay on the right side of Uncle Sam," says Herron.