Are cryptocurrency gains taxable in the USA?
It is more than a decade since the launch of bitcoins. However, there is still much confusion about tax implications on cryptos. Bitcoins, Ethereum, Shiba Inu, and other cryptos are taxable. Cryptos have gained popularity amongst investors for daily transactions. However, cryptos have yet not been able to attain the status of a currency. While these speculations are still on, there are traders interested in investing heavily in cryptos.
IRS in its notice came out with their clarifications about cryptocurrencies. The government clarified that cryptos will be treated as an asset. Like property, the government shall levy taxes on cryptos as well. In addition to this, there is an additional question in Form 1040. This will allow citizens to declare whether they hold any crypto investments at trustpedia.io/crypto/. Taxes will apply to citizens depending on the crypto investments as declared.
Depending on the type of transactions undertaken using cryptos, there is a difference in the model of tax implications. Before understanding about crypto tax implications, let us look at the below takeaways –
- Cryptos will be treated as an asset and taxes applicable
- Taxpayers need to declare the volume of bitcoins held for purpose of taxation
- Capital gains tax shall be applicable for any retail transactions including buying and selling of goods
- Mining businesses shall be liable under capital tax gain
- Donation, inheriting, and gifting cryptos is also taxable under the property taxation scheme
If you are trading using online exchanges, then filing your tax returns is comparatively easy. You will find difficulty only when you are completely carrying out transactions in and out. Here is the list of things that must be kept in mind while making your tax declarations.
Tax impact while purchasing crypto with dollars: There is no tax implication if you are buying and retaining cryptos using Dollars. In this case, you simply buy the crypto using an exchange, retain them in your wallet. There will be no tax implied to these such holdings.
Cryptocurrency trading: If you are planning to use crypto as a medium of exchange, then be aware of the tax implications. If you are exchanging one crypto for another or buying and selling goods and services, then there is tax to it. IRS will be reviewing all transactions in the next financial year. There will be multiple audits and reviews of transactions to ascertain the total taxable amount.
Capital tax on cryptos: When you trade your crypto or use crypto to buy and sell an item then there is a capital tax on it. What is a capital gain or loss on your crypto? Gain or loss is defined as the amount you earn or lose while trying to sell your cryptos. The total gain or loss that you finally earn will be reported for your taxing purposes.
In case your losses are exceeding your total gains, then you can reduce up to $3000 from your taxes.
Another notable part of capital gain is the time taken to buy and sell cryptos. If you have held crypto for more than a year, then such holdings are qualified as a long-term holding. However, if you buy and sell cryptos within a year then the same is considered as short-term holding. As per US law, there is a difference in tax benefits on long and short-term holdings.
How to report your crypto income?
Certain services accept cryptos as an acceptable exchange for payments. This means you are receiving crypto instead of cash. Another possible attraction here is earning bitcoin through mining, receiving tokens and cash as rewards, etc. Irrespective of how you earn cryptos, it is relevant for you to convert these earnings into US dollar value. Once the conversion is complete then you need to go ahead and declare the same as taxable income with the government.
Track your payments: If you are dealing with cryptos, you need to keep complete track of your income. Yet another important factor is for you to understand that tax slabs are applicable for cryptos in the US. You can visit the official website of the IRS to get a fair idea of how tax works. The website also provides you with details about the documentation required. Documentation includes records of your crypto about buy, sell, exchange, total profits, or losses incurred.