Cryptocurrency Taxes – What Should You Know

In this world, nothing can be said to be certain, except death and taxes,” said once Benjamin Franklin, who would never imagine that in a couple of centuries, taxes would cross with cryptocurrencies. More people are starting to invest in and trade crypto nowadays. Some of them may not realize that many digital currency transactions are taxed.

Continue reading, and you’ll find some helpful information about what you should know and how tax regulations work for crypto assets.

How do tax rules work for cryptocurrencies?

No matter how you look at it, cryptos like Bitcoin or Ethereum are subject to capital gains tax rules. The Internal Revenue Service (IRS) considers all cryptocurrencies to be capital assets, and when you sell them for a profit, you must pay taxes on that money. It is what happens when you sell investments like stocks or mutual funds for a profit.

How long you’ve owned bitcoin impacts capital gains taxes. Short-term capital gains are taxed at your ordinary income tax rate if it hasn’t been a year. However, if it’s been at least a year since you acquired the coins, you may be eligible for a reduced long-term capital gains rate.

Also, just like with any other investment, if you sell your cryptocurrency investment at a loss, you may be able to claim a capital loss and use it to lower your income taxes.

But there are a few more kinks in cryptocurrency taxation.

Crypto taxes if you make purchases with cryptocurrency

When you use cryptocurrencies to pay for products or services, your transaction counts as a sale of that coin. It implies that if your coins’ value has exceeded what you initially paid for them, you will be required to pay capital gains taxes. You will also be responsible for paying any applicable sales taxes.

Crypto taxes on cryptocurrency mining

Whether you mine, run a campaign or sell items or services, cryptocurrency income is taxed. So, you must pay taxes on the cryptocurrency’s fair market value on the day you obtain it.

Depending on how long you’ve kept the cryptocurrency you mined or earned, you may have to pay capital gains taxes if you spend or sell it for a profit after its value has gone up.

How to file your taxes for crypto?

Getting your crypto taxes in order as soon as possible is always a good idea. On the standard Form 1040 tax return, you’ll be asked if you bought or sold any virtual currency during the year. If you said yes, here’s what you should remember:

• Keep transaction records

You must maintain a record of every crypto transaction you make, including the cost, the time you held it, the price you received when you sold it, and the receipts for each one.

• Complete the appropriate tax forms

You will need to fill out certain tax forms depending on how you use your cryptocurrency.

• File tax returns

You submit your entire state and federal tax returns using the online tax software.

• Get help

Preparing for crypto tax may be challenging since the regulations are constantly changing. If you’ve earned a lot of money from crypto, you may want to hire a certified public accountant (CPA) that specializes in crypto taxes to avoid the IRS.

Bottom line

So, as it appears, your cryptocurrency holdings, including Bitcoin, Ethereum, and others, are taxed. Furthermore, since the IRS views cryptocurrency holdings as “property” for taxation purposes, your virtual currency will be taxed similarly to any other asset you may possess, such as stocks or gold. Therefore, we hope this information provided above will be helpful, and you’ll know what to do to enjoy your assets and, in the meantime, stay within the tax regulations.