Several Things To Keep In Mind When Dealing With Cryptocurrency

Several Things To Keep In Mind When Dealing With Cryptocurrency

What are the tax implications of cryptocurrency?

The cryptocurrency was recognized as a digital asset by the IRS in 2014, rather than a fiat currency like the US dollar. Since then, it has been taxed on its capital gains in the same manner as other capital assets like stocks, bonds, and property have been.

When you sell anything for a profit, you must pay capital gains tax. When you acquire goods or services using cryptocurrencies, and the cryptocurrency taxation you used to pay for them has appreciated since you paid for them, you are subject to capital gains taxes.

You only owe capital gains taxes on the realized profit you made when you sold or traded your bitcoin, much like equities. If you lose money on a transaction, you don’t have to pay taxes on it, but you must still disclose the loss on your tax return.

What is the tax rate on cryptocurrency?

For federal taxes, the cryptocurrency taxation rate is the same as the capital gains tax rate. Short-term capital gains were taxed at 10-37 percent in 2021, while long-term capital gains were taxed at 0-20 percent.

What types of cryptocurrency transactions are taxable?

Any time you make a profit or a loss, it’s a taxable event. You must record any taxable event that affects your bitcoin interests on your taxes.

When it comes to crypto, there are two types of taxable events:

  • Tax consequences of capital gains
  • Tax-related incidents

It’s crucial to know which events fit into various categories since they’re taxed differently. A US tax filing from India company will help you with your tax.

What are the different types of crypto capital gains tax events?

Short-term and long-term capital gains are taxed for the following activities:

  • Cryptocurrency may be exchanged for fiat currency such as the pound sterling, euro, or US dollar.
  • Purchasing products or services with cryptocurrencies
  • Swapping or swapping one crypto asset for another is a common practice.

Purchasing products or services with cryptocurrencies

Assume you purchased 5 bitcoin (BTC) for $150 apiece before 2014 and haven’t touched them since. You bought a new Harley-Davidson for $56,000—the price of one bitcoin at the moment of purchase—as a reward for yourself.

A taxable event occurred as a result of this transaction. As a consequence, you make a $55,850 long-term capital gain—the difference between the bitcoin’s worth when you acquired it: $150, and the bitcoin’s value when you performed the transaction: $56,000.

Your transaction must be reported as a long-term capital gain on your taxes.

What tax do consequences come with donating, gifting, or inheriting cryptocurrency?

Crypto donations are tax-deductible in the same way as cash donations are.

Crypto gifts under $15,000 are exempt from gift taxes. If you get a cryptocurrency as a gift and decide to sell it, your cost basis will be the same as the gift donor’s, and you will be liable to capital gains tax.

Cryptocurrency assets that are inherited are subject to the same estate laws as traditional assets.

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By Michael Caine

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