Tax review on cryptocurrency: Do I need to pay Taxes on Bitcoin & other cryptocurrency?
The whole world is in awe while watching cryptocurrencies achieve new milestones on exchange charts. People are going head over heels to invest in digital currency and sell them just at the right moment to get heaps of money. This might be the depiction up till 2019, when crypto world was at the mercy of speculators without any proper rules and regulations. This accounts for the extreme volatility observed in the history of cryptocurrency. But times have changed and so do the rules and regulations regarding cryptocurrency.
AM I LIABLE TO PAY TAX ON THE CRYPTO I OWN?
As per the ruling issued by IRS (Internal Revenue Service) in 2014, cryptocurrency will be treated as a capital asset just like stocks or bonds, instead of a currency like dollars or euro. This decision resulted in major consequences for owners of cryptocurrency, as it made them eligible to complicated taxes. Capital assets are liable to taxes whenever they are sold at a price higher than they are brought at. So if you made a purchase using crypto and that crypto you spent has gained value, you will be required to file tax on that particular crypto. Let’s make things simpler by taking an example. Imagine you purchased a virtual coin at some time worth $100, now its price rose to $500. At this point you opt to buy groceries worth $500 using that coin. You will be liable to pay capital gains tax at $400 profit you made out of that virtual coin. Even though, the coin was not sold rather than spent, for IRS its one and the same thing. Whether you are eligible to pay tax or not depends on how you got the crypto and how you use them. Here are some other instances where you are liable to pay tax on the crypto you own.
- Obtained through mining.
- Obtained during a marketing promotion
- Received crypto as payment for goods or services
- On converting one crypto to another.
In all these instances, you owe tax on the entire value of the cryptocurrency. The crypto tax bill depends on how long you hold the digital coin and your annual income.
Short-term capital gains: If you own Bitcoin or Ethereum for a year or less, any profits would be taxed at the regular income tax rate. These are called short term capital gain.
Long-term capital gains: If you held cryptocurrency for more than a year you will be taxed at a rate lower than income taxes depending on your income.
CAN I LOWER TAXES ON BITCOIN?
Imagine you made a hefty profit selling your cryptocurrency. All was well and exhilarating until you are asked to drop a big amount of profit as part of the tax return. Doesn’t seem good, right? Don’t worry we have got you covered. Here are few ways you can adapt to lower down your crypto taxes.
1. KEEP CRYPTOCURRENCY FOR A LONG TIME
Holding crypto for over a year before selling will make your gains qualify for the long-term capital gain’s rate. This can actually cut down your taxes to half, depending upon your annual income. From a maximum rate of 37% for short-term to a maximum rate of just 20% for long term gains, this might just be the perfect idea.
2. OFFSET GAINS WITH LOSSES
Another attempt could be, by claiming losses on investments other than crypto in the year you expect the profit from crypto. In the year you intend to make huge profit out of crypto, look out on losses that you might incur to offset your gains.
4. CLAIM MONEY FOR MINING
Mining crypto requires considerable expenses which include computers, servers, internet service provider charges and electricity bills. Being a crypto miner you can remove these costs from your mining income. Although the amount you can deduct will depend upon how you categorize your mining operation, as a hobby or business.
6. DONATE TO CHARITY
Donating to charity might not actually be everyone’s type of option. But in might come in handy for you as well as for some needy. Donating a part of your profit we give you a deduction worth full value of the crypto plus any gains.
CRYPTO TAX CALCULATOR REVIEW
These softwares come in handy when calculating how much tax you have to pay. Here are some:
- Accointing.com
- Cointracking
- TokenTax
CRYPTO TAX SOFTWARE FOR BEGINNERS AND TRADERS
Accounting software focuses on the user providing educational content. It also comes with a build in crypto tracker app along with crypto tax software. It delivers specific outputs per country for the US, UK, Germany, Austria, Switzerland, or countries that make use of FIFO or LIFO as a tax method. It provides great customer support, and is amongst the most affordable platforms out there.
CRYPTO TAX SOFTWARE FOR CPAS AND STARTUPS
Cointracking is a more complex platform with more statistics of the cryptocurrency landscape. It has a sturdy infrastructure in terms of data and might not come in handy for new and inexperienced traders.
CRYPTO TAX SOFTWARE WITH PROFESSIONAL
TokenTax is a platform for individuals who want to get their tax done with the help of professional but at a cost steeper as compared to the market. They mainly focus on countries with English as the first or second language. So people from US, Canada, or Australia will not have any trouble contacting them. They look after several tax methods and can also provide a tax package with a CPA for a price.
Comments (No)