Everything You Need To Know About Crypto Taxes: Maybe you are among one of the millions who started trading cryptocurrency. Or maybe the bonuses that you receive from digital trading are now an essential part of your package. There are also the chances of using it for purchasing something or paying for any services taken like this App where your all needs for crypto are already here.
Possibly you might be thinking that cryptocurrency is not something tangible and the U.S Government is not even regulating it, so you do not have to pay any taxes on the gains that you are generating from crypto trading. You are absolutely wrong.
Most of the transactions made by using digital currencies are considered taxable as the International Revenue Service (IRS) has made it certain since 2014 that gains or profits from cryptocurrency are taxable.
How is Crypto taxed?
If you’ve made a transaction using cryptocurrency and you have earned profit that would be taxable. For instance, at $20,000 and when it rose to $70,000, you instantly sold it, you’re willing to pay tax on $50,000 gain.
On the other hand, if the prices fall and you were not even able to get the purchasing price, this loss can be used to offset any other gains.
Get the details of your transactions
Complete detail of your transactions is required to provide information about your taxable profits. There are few Cryptocurrency Exchanges that usually provide you a summary of your gains and losses, but most of the exchanges do not do so. In order to systemize and summarize your profits and deprivations, Special crypto tax software is brought into use. After your data is organized, it can be reported.
Cashing Out Cryptocurrency
You have to keep in your mind that just like any other asset, the profits or the losses on the trade of cryptocurrency are considered as gains on capital or loss on capital. If you are exchanging cryptocurrency for U.S dollars, the value of the virtual coins being sold must be in the knowledge of the trader.
Any gain on the sale of an asset that was held for a period of fewer than 12 months, would be taxable at an individual’s normal tax rate. In 2021, that lies between 0-37% dependent on the income of the taxpayer.
The regulations differ for those who are involved in mining cryptocurrency. The miners make the transactions of cryptocurrency verified and attach them to the blockchain. They are being paid for this work. The payment they receive is considered taxable as it is an income from the source of business. They are benefitted by getting their costs of mining operations like computer hardware and power supply cut.
Paying for personal purchases with cryptocurrency
Nowadays, a lot of transactions are made by using digital currency like crypto. Having the record of these transactions and putting them on the track of taxes is not a child’s play because people often pay for goods & services by cryptocurrency. It is needed to determine which of the crypto coins was brought into use while getting a cup of coffee, what were the base price and the value of the coin at the time of that transaction. And the most important factor is that it works only for a coin that is on a journey of gains.
Switching from one cryptocurrency to another may also impose taxes on the investor. For example, if you are going to purchase one coin with the other coin, it simply means that you are selling the other coin. So, if there exists any difference between the prices of both coins, you will be responsible to pay the tax accordingly.
Moreover, if you have performed a service on your own and you got paid in cryptocurrency, or you were involved in staking in which you got rewarded on digital currency, it may also impose a tax on you.
It is concluded that, if you are a filer and you are also having profits on cryptocurrency and you are not even paying the tax, you are being watched. Also, you’re not following the IRS rules and you’ll be caught up someday. Beware!