Currently, it isn’t the most fascinating element of investing in cryptocurrencies, but if you do decide to do so, you must be aware of how cryptocurrencies are taxed. Although there has been a lot of buzz around crypto in the last 5 years because of the rises and falls in the value of the crypto coins, the IRS is Despite the fact that cryptocurrencies are still a new concept the IRS is making sure that they are taxed correctly and the regulations are trying to keep up with the pace of technology.
Cryptocurrency taxes may be due in a variety of ways, and simply exchanging one cryptocurrency for another is a taxable event. It’s a good idea to keep records, as it helps you address the challenge of finding and tracking all your earnings and losses around tax time. You will learn about the federal tax rates and other important details relating to this complex subject, as well as how to submit cryptocurrency taxes.
In The US, is Cryptocurrency Subject to Taxation?
Taxation applies to cryptocurrencies. The IRS has designated any kind of crypto assets as property. So, naturally the transactions involving it are taxed under the law just as those involving other kinds of property. A taxable event, such as the selling of bitcoin, is required first. You’ll have to pay taxes when you practice economic activity with the coins. This includes selling, trading, or otherwise disposing of your crypto assets bitcoin for a profit.
To understand this, here’s an example. Let’s say you bought ethereum worth $1,000 and sold it for $1,200, the $200 profit must be reported and you’ll have to pay any resulting taxes.
If you sell cryptocurrencies and lose money, you may write it off as a tax loss. The act of purchasing cryptocurrencies is not in and of itself taxable. You may purchase and retain bitcoin without paying taxes, even if its value increases.
Identifying If You Owe Cryptocurrency Taxes:
If you spend your bitcoin and its value has grown since you acquired it, you owe cryptocurrency taxes. The many types of taxable events for bitcoin transactions, such as using cryptocurrencies to pay for goods and services and exchange different types of cryptocurrencies, are listed below. When you trade a cryptocurrency for fiat money, the transaction is known as a fiat currency exchange.
If the value of your bitcoin has grown, this is just a taxable event. Knowing your cost basis, or the entire amount you spent for your bitcoin, is necessary to figure out whether you owe cryptocurrency taxes. Then you contrast that with the cost you paid when you bought the cryptocurrency and the profit you got when you sold it.
Taxation of Cryptocurrency Income?
When received by the taxpayer, cryptocurrency income is taxed like ordinary income at its fair market value. Some of the most typical examples of cryptocurrency revenue are as follows:
- Getting paid in cryptocurrency for a service
- gaining advantages from bitcoin mining
- gaining advantages from staking cryptocurrencies
- earning income when lending cryptocurrency
Paying Capital Gains on Cryptocurrency?
The tax treatment of cryptocurrencies is the same as that of stocks and other forms of property. If you make a profit after selling or otherwise disposing of cryptocurrencies, you must pay taxes on that profit. Gains from cryptocurrency are taxed at the same rate as capital gains from stocks.
As a result, investing in cryptocurrencies can help you make more money from your funds. There are various tax policies and oversight mechanisms for bitcoin and other digital assets across the world.
But, if you are a freelancer, independent contractor or self-employed individual you can also download the FlyFin app to power your tax duties. The app automatically finds your business deduction and also has various tax calculators in the web-version. You also have access to a trove of tax resources that include information about 1099 forms like the 1099-k, 1040-ES form and other tax knowledge like the SECA tax, etc.