7 Things You Should Know About Cryptocurrency Taxes
Tech mistake |As we head towards another tax season, taxes for cryptocurrency have to be filed, just like you do with all the proceeds from your assets. However, only a few people know how to file cryptocurrency taxes because of the complexity associated with it. Other people have gone to the extent of viewing cryptocurrency as a means in which you can carry out business transactions without having to pay taxes. As the days go on, more and more people are using cryptocurrency because of its high prospects. This has necessitated the Internal Revenue Service (IRS) to come up with regulations that focus on the taxation of digital assets like cryptocurrency. It is therefore crucial to file cryptocurrency taxes, just like you do with other assets. Here are some things you need to know about cryptocurrency taxes.
- All the proceeds from cryptocurrency transactions are taxable
You are required to report any gains or losses resulting from your cryptocurrency transactions to the IRS. More specifically, you have to report any gains resulting from exchanging one cryptocurrency for a different one, the gains you get when you convert the cryptocurrency to US dollars, and even when you spend cryptocurrency in taxable events. You can learn from other crypto-enthusiasts on how to invest in cryptocurrency or how to exchange yours for maximum gains, and even share your knowledge on cryptocurrency with others at https://trybe.one.
- Some crypto-related things are not taxed
You cannot be taxed if you only buy or hold cryptocurrency. You have to conduct trade using your cryptocurrency for it to be subjected to taxes. Capital gain taxes apply to all crypto functions you carry out, but just like with any other asset, you are allowed to claim a loss in case you lose money when doing cryptocurrency transactions.
- Fork taxes
If you are a crypto owner and you manage to receive new digital tokens that originate from forks, then you are also liable to pay taxes. When you take a look at IRS laws that govern cryptocurrency taxes, they state that money that is found is also subjective to tax. In taxation, this money is called treasure trove and should be reported as income.
Forks in crypto refer to updating crypto software or protocol/code, resulting in an alternate version of blockchain; therefore, two block chains are left running concurrently on diverse parts of the network, going by the type of forks taking place.
- Crypto mining taxation
If you carry out cryptocurrency mining and you manage to make a profit, then the proceeds are subject to tax. IRS states that these proceeds have to be taxed regardless of the efforts you direct towards the mining. IRS considers these efforts to be like a hobby or a kind of self-employment. As such, you are required to report all the income gained from cryptocurrency mining.
- Digital deliverance through specialized tax preparation services
If you are an investor who does a lot of cryptocurrency transactions in a tax year, you can be overwhelmed by the process of submitting the tax papers. As much as you can seek help from accounting firms that have specialists who deal with cryptocurrency taxes, this can cost you. Luckily, there is software that carries out crypto tax preparations that you can buy or lease.
- Donating crypto
Just like any other asset, if you donate crypto to a charity, then you can be exempted from paying taxes. However, this crypto must be one that is recognized by the IRS. The value of your donation is deducted on the exact date it occurred.
- Cryptocurrency tokens can be tax exempt
There are speculations that cryptocurrency tokens cannot be subjected to tax laws. This is because the IRS terms cryptocurrency as virtual currency that can act as a substitute for real currency. Since tokens do not totally fall under this definition, they can be tax exempted. However, it is important to consult certified professionals so that you know what to include and what to exclude.