Are you a cryptocurrency owner? Fill in your US tax forms

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Is it necessary to pay taxes on cryptocurrency? Crypto is classified as a sort of property rather than a money by the IRS in US. You must pay taxes on the current value of Bitcoin if you get it as payment. You’ll be taxed on the difference between your buy price and the revenues of the sale if you sell a cryptocurrency for a profit.

If you invest in cryptocurrency in 2021, you may have to pay taxes in 2022.

Bitcoin, Ethereum, and other cryptocurrencies are subject to taxation. The IRS (Internal Revenue Service in the United States) considers cryptocurrency holdings to be “property” for tax purposes, which means your virtual currency is taxed similarly to any other assets you own, such as stocks or gold. And the tax season began in January 2022.

Many new investors purchased cryptocurrency for the first time in 2021. According to a recent Grayscale Investments study, more than half of current Bitcoin investors began investing in the last 12 months. Throughout the year, the cryptocurrency market experienced multiple all-time highs and lows, resulting in significant gains and losses for many investors.

When you use cryptocurrency as a means of exchange, things start to become taxable. This includes selling your cryptocurrency for US dollars, exchanging one cryptocurrency for another — for example, buying Ethereum with Bitcoin — or using cryptocurrency to pay for goods and services.

A non-fungible token, or NFT, is a blockchain token that proves you are the sole owner of a one of a kind digital item. NFTs can be purchased and sold on digital marketplaces such as OpenSea and SuperRare.

If you’re creating or minting NFTs, you should understand what events are taxable and how they’re taxed. Paying gas fees to mint an NFT, for example, is a taxable event. Assume you make NFTs for fun and spend 0.1 Ethereum per NFT. If you paid $300 for this Ethereum and it was worth $600 at the time you minted the NFT, the transaction would result in a $300 capital gain for you. Depending on how long you held the Ethereum before using it to mint the NFT, you would be subject to either a long-term or a short-term capital gains tax rate. If you were a professional creator who frequently minted NFTs for your business, the $300 would be considered normal income.

Taxes work similarly for NFT investors as they do for crypto traders. Most art-based NFTs are taxed as collectibles, which means they are subject to capital gains taxes like other common cryptocurrencies. When you buy or sell an NFT with a cryptocurrency such as Ethereum, you will be subject to capital gains taxes. The amount you owe will be determined by how long you held the NFT and whether or not you profited. According to Chandrasekera, CPA and head of tax strategy at CoinTracker.io, you can also claim losses on NFTs in your taxes.

“If the value of your Ethereum has dropped at the time you’re buying an NFT, you can claim a loss,” he adds.

Because virtual currencies are considered property by the IRS, their taxable value is determined by capital gains or losses — in other words, how much value your holdings gained or lost in a given period.

The length of time you owned the cryptocurrency also plays a role. If you held onto a Bitcoin unit for more than a year, it would generally be considered a long-term capital gain. However, if you buy and sell it within a year, it is a short-term gain. These distinctions can have an impact on the tax rate that is applied. The tax rate also varies depending on your total taxable income, and there are limits to how much you can deduct in capital losses if your cryptocurrency asset loses value.

Some people are paid in virtual currency for their services.

This could mean receiving cryptocurrency as income rather than cash, earning Bitcoin by mining new coins, or receiving coins or tokens as a reward for certain activities (such as Coinbase’s Earn rewards program). Whatever method you use, you must record the value of the cryptocurrency in US dollars when it is received and report that income on your tax return.

Link to the IRS official website https://www.irs.gov/

If you want to calculate your cryptocurrency taxes, you can do this on https://koinly.io/

Crypto tax report

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