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What you should know about cryptocurrency taxes

 

 

For the past few years, the cryptocurrency market is gaining fans and investors. Much like traditional stock exchanges, people can buy cryptocurrencies and trade them for profit or buy stuff. Most people use them for trading as not many businesses accept crypto payments. We can somehow term crypto trading as stock market trading or perhaps commodity trading. Much like crypto traders, commodity markets are trading in bitcoin futures.

These brokers are creating a market of a commodity that exists only as a digital code. Critics often say “If we look at bitcoin we can say bitcoin has not behaved anything like a currency”, If a currency fluctuates wildly and consistently it becomes a less efficient pricing mechanism for exchanges. Hence, Relative stability in the price of the currency is essential.The decentralized currencies bring immense prospects with them; they serve as a useful way to transfer money from one place to another with no intermediary as banks. There are various elements, which are involved in a transaction such as wallets, exchange processing systems, etc. Crypto is not real money why do I have to pay tax on them?

Well cryptocurrencies are treated as property for tax purposes, not as currency, transactions using virtual currency must be reported in the US dollar according to the newest IRS release. I have tried to answer some questions about the complicated world of crypto taxes.

How is cryptocurrency taxed?

In most countries like the US and other countries, cryptocurrencies like bitcoin, Etherium, and others are treated as property for tax purposes instead of currency. Hence, it is taxed much like how stocks, bonds, and real estate are taxed. Much like others, you incur capital gains or capital loss when you dispose of the property. You are taxed on your capital gain as per federal tax brackets. Let us assume that in the short-term gain someone bought a bitcoin for 10000$ and in two months the prices went up to 12000$. His capital gain is 2000$. Let assume that the same person has made 100000$ last year, the tax will be calculated in the marginal tax bracket single filing separately and that is 24%. Taxes are calculated at a different rate if it is a Long-term gain.

 

What are the taxable Events in cryptocurrency?

People also get confused about the taxable events; Do I have to pay tax if I buy a cryptocurrency? What if I transfer my crypto to another wallet, am I taxed? I have tried to answer some of the questions about taxable events in this article.Taxable events are transactions that result in a tax consequence for the party that executes the transaction. There are several taxable events. Selling cryptocurrencies, trading crypto to crypto and Using cryptocurrencies to buy goods and stuff, These are all taxable events.

Likewise, there are some non-taxable events too and people should be aware of that.

Simply buying and holding cryptocurrency is not a taxable event, similarly transferring cryptocurrency from one wallet to another is also a non-taxable event.

Will I be taxed if I mine cryptocurrency? Mining is another way of obtaining cryptocurrency. If you are one of the miners and you Mine cryptocurrency then the crypto received from mining is treated as income. For example, if you mine 0.25 ETH in a day then you gain an income of whatever USD value of 0.25 ETH on that day. This income needs to be reported. I hope that this may have cleared out some doubts one may have on the cryptocurrency taxable event.

 

How can one make calculating crypto tax simpler?

Crypto tax filing can be troublesome for many; The Exchanges will not be able to provide an accurate report with details about cost basis and market value once you transfer crypto out of the exchange, the key elements that are needed for tax reporting can be untraceable.This is why Crypto tax software are built for; Crypto portfolio management tools can help one save money by optimizing their tax return. A crypto tax software makes it possible to bring everything in one platform. It helps by collecting all the historical data of transactions and it also integrates the exchange. Now tax engines can easily calculate and generate tax reports without much of a hassle.

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