A guide to paying taxes on cryptocurrency investments
Yes. The IRS requires all Bitcoin transactions to be reported by taxpayers, no matter the value.
It also warns that individuals that incorrectly report Bitcoin income on their taxes could be fined or even prosecuted. Hence, it is also mandatory that you keep an account of all transactions associated with your Bitcoin for accurate reporting.
Bitcoin transactions of all types are subject to tax, including using Bitcoin purchased from another party to buy goods. In fact, anytime you purchase Bitcoin, including at a cryptocurrency exchange, you are required to pay capital gain taxes on the transaction.
COPYRIGHT_WI: Published on https://washingtonindependent.com/ebv/guide-to-paying-taxes-on-cryptocurrency-investments/ by William Willis on 2021-06-04T12:23:44.984Z
Likewise, if you sell a Bitcoin to another party that you have mined yourself, the capital gains are also taxed. Bitcoins mined to buy services and goods are also taxed.
You must also pay capital gains tax on purchases made using Bitcoin withdrawn from an exchange to your personal wallet.
Yes. Bitcoin miners have to pay taxes; however, they are only taxed on the fair market value of the coin when it was mined.
They can also make deductions to their tax bill for equipment and resources used in mining, provided it wasn't for individual or personal gain.
Converting one crypto to another is considered a like-kind transfer, which is taxable; therefore, you do have to pay taxes on the transaction; however, the IRS also allows you to defer income tax when doing so.
Cryptocurrency donations are treated similarly to cash donations in that they are also tax-deductible, but only for the fair market value of the currency at the time it was donated. The donor also does not have to pay capital tax gains.
Inherited cryptocurrency, on the other hand, is treated the same as other assets; hence the same estate regulations apply.
Lastly, cryptocurrency gifts less than $1500 are not subject to income taxes; however, any gifts valued above that are taxed on the fair market value when the inheritor sells them.
Cryptocurrency as in investment is considered an asset like a second property; therefore, individuals are required to pay capital gains tax when they sell it.
Day trading cryptocurrencies in a fiat-crypto or crypto-crypto manner is also subject to taxes.
However, you only need to pay capital gains tax on gains worth more than £12000 ($16000) during a tax year.
In the end, when trading or investing in cryptocurrency, it is important to maintain accurate tax records to avoid IRS penalties. However, according to the experts at SoFi, "Unfortunately, the IRS doesn't exactly make it easy to understand how to calculate crypto investors' tax liability."
For this reason, you may consider crypto taxes by SoFi, which helps you keep track of your crypto holdings and manage your tax liabilities to help simplify the process and save time and frustration.