Click here to check the ultimate guide to learn how to leverage your PC and internet to make money online.
The Washington Independent
The Washington Independent

A guide to paying taxes on cryptocurrency investments

A guide to paying taxes on cryptocurrency investments

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.

Liam Evans
Jun 04, 2021

Table of Contents

Do you have to pay taxes on Bitcoin transactions?

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.

What types of Bitcoin transactions are taxed?

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.

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You must also pay capital gains tax on purchases made using Bitcoin withdrawn from an exchange to your personal wallet. 

Do I have to pay taxes if I am a Bitcoin miner?

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. 

Do I have to pay taxes when I convert from one cryptocurrency to another?

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.

What are the tax implications of donating, gifting, or inheriting cryptocurrencies?

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. 

Paying tax on cryptocurrency investment gains

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.

Liam Evans | Liam Evans is a freelance writer and social media manager who specializes in assisting finance professionals and Fintech entrepreneurs in growing their online audience and attracting more paying customers. Liam worked as a bank teller and virtual assistant for financial firms in the United States and the United Kingdom for six years before beginning her writing career.


Cards That an Investor Should Rely on While Transacting in Cryptocurrency

Past the variances that Bitcoin has shown, it has made its name in the crypto business as the first-biggest digital currency in quite a while of the market capitalization.

Crypto Tokens Vs. Cryptocurrency, how these Two Terms Are Different From Each Other

For over 10 years now, we have become familiar with the term’s cryptographic money, yet we realize that this market has no guideline when contrasted with the other financial foundations. However, this term has become very normal for us all, the explanation being the notoriety that it has because of some very noticeable reasons.

How Indians Are Dealing with the Crypto Regulation in the Country

Cryptographic money is a stage that has prompted a ton of advancement in the financial computerized world. The starting time for this advanced cryptographic money was in the year 2009 when the world needed to coercively plunge into this downturn.

Key Points That Have Led to the Notoriety of Cryptocurrency in the World

Digital currency is a venture that is however long you need to put resources into it. Its unmistakable quality actually lies in the current year and will lie in future as well.

Listing Some Best Bitcoin Wallets, You Should opt For In 2022

If you are a fresher who has just begun with crypto investments, you must be confused or rather blank as to where you should put your digital assets for their security and protection.

What Are Cryptographic Forms of Money

Cryptographic forms of currency is that currency where for transactions, trade and for exchange the medium which is adopted is digital. The revolution that has come in the financial world has brought so much advancement and the area that has been left non-digitized has also become digital.

What Is the Relevance of Non-Fungible Tokens in Cryptocurrency?

NFT are those symbols that are accessible on an advanced stage, in contrast to the actual one. They are exceptional in their reality since they have some average credits in them which makes them indispensable.

Top 3 Bitcoin Casinos In The USA

Reviewing the top 3 best Bitcoin casinos aimed at players from the USA, including available games and special extras just for Bitcoin users.

Ethereum Explained: All You Need to Know About Ethereum

Cryptocurrency is on an upward trend right now, with the first and leading cryptocurrency, Bitcoin, hitting a $60 thousand dollars market price; thus, crypto investors’ attention is on the Bitcoin market. However, Bitcoin is not the only crypto you should keep on the watch; Ethereum network’s Ether– Ethereum’s official crypto, which has always been in the shadow of Bitcoin, has maintained its position as the second leading cryptocurrency in the crypto market.

Best Digital Asset: 7 Benefits Of Using Bitcoin

Since the development of the cryptocurrency market, Bitcoin has shown constant growth, which has led to the number of individuals and firms to invest in it. In fact, Bitcoin is the first cryptocurrency to arise, and it influenced and led to the birth of several other cryptocurrencies that are widely used nowadays.

City of San Francisco Approves Use of Vaccine on Blockchain

At a time when the Omicron variant of COVID-19 has been detected from South Africa with “an increased risk of reinfection,” alarming countries worldwide and perpetrating travel restrictions and the closure of borders, it cannot be denied that the coronavirus pandemic is starting to become endemic. The new variant is still being tested if it is resistant to existing vaccines in circulation.

© Copyright 2021 The Washington Independent All Rights Reserved

Terms & Privacy |

Click here to check the ultimate guide to learn how to leverage your PC and internet to make money online.