Cryptocurrency taxes are an area you shouldn’t overlook, yet as CPA Exam Guy explains, becoming a certified accountant is a complex process. If you want to ensure that you record your crypto assets correctly, it is perhaps best to leave this to the professionals.
Luckily, there are various applications and tools to help with this. You can get a grounding in crypto taxes by keeping the following three factors in mind at all times.
You will Be Taxed On Trades And Sales
The IRS will want to know about any money you make or lose in the process of selling and trading cryptocurrencies each year. This applies whether you are converting one currency into another, or using the currency to make relevant purchases. Simply buying cryptocurrencies, on the other hand, is not taxable.
Failure To Declare Will Result In Penalties
As with any tax issue, regulators will happily punish individuals and businesses that do not obey the law when it comes to declaring cryptocurrency transactions. Although this is a fairly new area, the IRS already has a guide to virtual currencies which is worth studying to ensure you understand your obligations as they stand today.
Knowing the risks is clearly important, and it is also vital to appreciate that even with the security and anonymity afforded by blockchain technology, tax investigators can still see how much trading has been carried out by individuals. This is thanks to a relatively recent case which went through the courts, so if you are trading currency worth more than $20,000 in a given year, expect the IRS to know all about it.
Capital Gains Tax Applies To Cryptocurrencies
Regulations currently define cryptocurrencies as the property of the owner, which makes them subject to capital gains tax. The rates you pay will depend on the tax bracket you occupy according to your income and the length of time for which you have held the currency.
To add to the rigmarole of crypto-related taxation, there are specific forms to complete and other hoops to jump through in order to stay in the IRS’ good books. Calls for clarity on this muddy issue should make things simpler in the future.
Earnings From Crypto Mining Are Taxable
While the craze for mining cryptocurrencies has fallen from its peak as a result of the diminishing returns which were associated with it, there are still plenty of people involved in this scene. If you happen to have a mining rig set up at home or in any other setting, you need to be aware that declaring the earnings you achieve from this process is important.
Mining for Bitcoin and other currencies of a similar ilk will put you in the same category as a self-employed individual in any other industry. If you have a full-time career in addition to this, you will need to consider how your tax status will be impacted as a result of the earnings you make on the side from crypto mining.