Talking about taxes, one of the vital asset is cryptocurrency like any other. However, most of the people avoid filing cryptocurrency taxes because of its complexity. Also, some people avoid cryptocurrency taxes completely as they consider an illegal way to move money.
Moreover, paying cryptocurrency taxes is becoming the eminent affair to be taken into consideration as IRS (Internal Revenue Service) shifts its focus to digital assets and as the cryptocurrency is on the continuous growth ladder. This upcoming tax season, let’s have a look into some things that will guide towards how to approach cryptocurrency.
Increased focus of IRS on crypto taxes
IRS has increasingly shifted and emphasized to pay crypto taxes. What is expected to happen if you don’t pay taxes of cryptocurrency?
Well, it can result in a maximum fine of $250,000 and a maximum sentence of five years in prison like any other tax frauds.
Cryptocurrency sales and trades-all are taxable
IRS should be reported about losses and gains on all individual trades. You should never forget that whether you are exchanging cryptocurrency by USD or another, spending cryptocurrency or it’s converting it back to USD are all applicable events to taxes.
Cryptocurrency and miners:
The miners are not exempted from the taxes; they have to pay taxes from their earnings according to their income level. If they are self-employed, then they have to pay 15.3% of the tax.
They can deduct the expenses or loses from their income to minimize the tax amount.
Trading of cryptocurrency:
The investors are tax-free; they don’t have to pay taxes on the buying of cryptocurrency. .the tax will be charged if you sell the cryptocurrency. If you had some loses on cryptocurrency, then you can be saved from the capital gains taxes.
Tokens for cryptocurrency:
The cryptocurrency is a substitute for the real currency, and tokens are something different in nature. Tokens are exempted from the taxes according to the tax laws.
The cryptocurrency is the asset in the form of virtual currency or has equal value of the real currency.
Cryptocurrency checklist for tax:
There is much different information that investors have to be filed or things to do for paying taxes.
- Get analyzing yourself, in which category you are falling like you are an only trader of cryptocurrency, minor or the employee that is paid in cryptocurrency.
- You must have a list of the traders of the cryptocurrency, which have the all necessary information about them. You must have all the record of the trade, from the date of trade to the statement of gain and loss.
- Complete the forms carefully and give all necessary information about your trade to your accountant. This will help you to get the exact tax amount according to your income.
Taxes are still in flux.
The payment of the cryptocurrency taxes is the same as the payment of the income taxes. The information is provided by the investor about the gain or loses. The investor has the complete record of all the trades and the plans for the next investment in cryptocurrency according to it.
Despite discussing some key points, there’s still a lot about the essence of cryptocurrency taxes not known vividly to us yet.
For instance, the status of cryptocurrency tokens and airdrops remain unclear to IRS. But it will be more feasible to prepare yourself for cryptocurrency taxes as you do with other tax-related requisites.
Editor of IMD News