Many people have begun investing in Bitcoin and other cryptocurrencies as a result of the growth of cryptocurrencies in 2018. The many taxes connected with purchasing cryptocurrencies might be complicated, though. Taxes on cryptocurrency are the same as in the US. This implies that any capital gains or income tax resulting from your profits are your responsibility.
To assist taxpayers in comprehending their obligations when dealing with cryptocurrencies, the IRS has published a new guidance. The document, which was released on December 17, 2019, describes how the IRS sees digital currencies and how they relate to US taxpayers. Taxpayers are not required by the IRS to pay taxes on cryptocurrency earnings, but they are also not permitted to claim losses incurred in these transactions as a deduction.
The best way to handle capital gains and losses According to the federal income tax legislation, cryptocurrencies are not considered to be money but rather property. When it comes to capital gains and losses, you are required to disclose any profits or losses on your taxes if they exceed $10,000. This would imply that cryptocurrency investors who earned big profits in 2018 will have to pay taxes on their earnings. However, the IRS just approved a new decision allowing cryptocurrency sellers to write off their losses.
How to properly manage your cryptocurrency
After properly configuring your wallet, you must make sure that you never transmit or receive cryptocurrency without adhering to the following procedures:
- When transferring money, don’t forget to account for transaction costs. We can assure you that this can save you a lot of money.
- Use passwords with caution. They should have at least 12 characters and be lengthy enough.
- Make sure you keep your wallet accessible. When you stop using it for a long time, it can happen.
- Do not send yourself coins. This might lead to you getting sucked into a pyramid scam and losing everything.
- Remember that both losing your cryptocurrency and losing access to it are possibilities. So, ensure that you have proper security in place on all your devices and have a secure hardware wallet to store crypto.
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Use a trustworthy crypto exchange
After you’ve successfully configured your wallet, using a trustworthy exchange is the best course of action. You should make sure that your transactions are performed quickly and securely at all times.
Utilizing a trustworthy exchange will allow you to take use of blockchain technology’s advantages while removing any security concerns.
Defining Crypto Assets
A crypto asset is “property” that symbolizes a cryptocurrency, according to the IRS. Stocks, bonds, derivatives, and other financial instruments are examples of these assets. They stand for a type of digital cash, hence they are regarded as property.
Cryptocurrency Capital Gains Tax
Crypto investors should bear a few key considerations in mind while deciding whether or not to sell their crypto assets, even if there are no restrictions or laws that forbid them from doing so.
First, according to the IRS, the capital gains tax rate applied to crypto assets is the same as the rate applied to other types of property.
Cryptocurrency investors may be able to avoid paying taxes on their holdings, though, by arguing that they are a hobby. In this case, cryptocurrency assets are not regarded as “property” and are thus not subject to taxation.
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How to pay crypto taxes
By employing specific tactics, you may typically avoid paying taxes on cryptocurrency. Margin trading, for instance, may be used to reduce risk and boost profit margins while trading cryptocurrencies.
Another tactic is something known as a “crypto wallet.” In essence, you may design a unique wallet to hold your digital currency. Then you may transfer your funds there and utilize it just like a bank account.
The lack of government regulation of crypto wallets is a drawback, but for starters it’s taxed as a property. There is also no assurance that you will recover your cryptocurrency investments back if they unexpectedly decline.
The exchanges are subject to the same rules. They frequently can demand greater fees and commissions since they are unregulated.
What advantages does employing crypto have?
The advantages of cryptocurrency are numerous. Here are a few examples:
Transactions are carried out directly between the people concerned; no intermediary is required.
There is no central authority since every action is recorded on a blockchain, a type of online ledger.
Decentralized: Unlike fiat, there isn’t just one institution in charge of deciding how money is spent and how much individuals are paid.
Conclusion
This brief summary of cryptocurrency taxes was provided. You must keep in mind that this only refers to the income tax regarding cryptocurrency. There is no exhaustive list of every type of taxes practiced in other nations. There are several nations that do not tax cryptocurrencies in any way but the US is not one of them.
If you need to get up to speed with your taxes you can download FlyFin, which is a smart tax tool, especially designed to serve self-employed individuals, independent contractors and small-scale companies like LLCs or sole proprietorship. You can also get information about sole proprietorships tax forms, and other important tax forms like the Form 1040.
