Crypto Taxation Simplified! Know what you owe
The crypto industry marks 2020 as a historic year. Bitcoin and NFTs were embraced by notable cultures, NFTs drove to SNL, and an unmistakable 16% of people from America participate in the crypto economy. If you’ve been one to take an initiative into the cryptoverse this recent year, you must be reflecting on whether you’ll be stuck with the tax bill this April? Well, it would depend on many components. Cryptocurrency taxation can be a complicated subject, to begin with, even for industrial experts. Here we bring you some basics that every crypto trader should know while sorting their taxes;
- Most of the crypto dealings are taxable, applicable with their own regulations and exceptions. You’ll have to record your crypto dealing with the IRS each time you sell, convert, earn, spend, or hold a stake in cryptocurrencies.
- There are two different ways for taxing your crypto gains, either at the rate of ordinary income or as capital gains. But, it would depend on various factors such as how you acquired your cryptocurrencies, the duration you held them for, and more. Further, The IRS manages crypto sellings in the same manner as stock selling. It implies you spend a minimal rate if you hold your cryptos for over a year or more.
- Exchanging cryptocurrencies is considered taxable. For example, converting your ETH to BTC or vice versa. It’s because you’ve practically sold out your ETH and made a purchase for BTC, which “realizes” a loss or gain, arousing from the process. Similarly, crypto spendings are taxable too. For instance, if you invested $15,000 in ETH that appreciated over time, and you’ve now used that money to get a car worth $35,000. It would indicate a taxable gain.
- However, just spending your cash on buying cryptocurrencies does not fall under the taxable category. It means you won’t have to record it on your returns. Additionally, you won’t have to report digital coins transferred to your other wallet or gifted to friends or family up to a worth of $15,000 (for the year 2021). If we’re discussing deductions according to the IRS’s recently published guidelines, then you can claim deductions for the crypto donations made to a charitable firm under 501(c)(3).
Why is it vital?
Although crypto taxation is an enormous ocean, it’s also a subject to attend to in all seriousness. It isn’t just crucial but also legally binding to precisely record and report your cryptocurrency movements, so ensure to be watchful of your transactions, and determine the ones that qualify for taxation. If you’re struggling with how to navigate and associate your crypto investment with taxes, there are professionals who can lead the way for you.