Taxation On Cryptocurrencies Guide
After almost a decade of existence, cryptocurrency finally made a huge appearance in the financial world in 2017. Nearly everyone with an Internet-enabled gadget has heard of Bitcoin, and many have already made fortunes from trading cryptocurrency. However, much of the cryptocurrency world remains uncertain, as various governments will apply taxes to the gains and losses made from cryptocurrency.
Additionally, the first thing you should understand is that cryptocurrency is just like an asset. The tax law sees cryptocurrency as an asset, despite the fact that almost all the cryptocurrency’s notional value is from the blockchain system. Therefore, cryptocurrency is a property or asset, e.g. (stocks, bonds, precious metals and real estate) and not as a currency like a dollar, euro, or yen.
Therefore, the rules for capital gains tax applies to any cryptocurrency sales for the common currency, used for the purchase of goods and services and trades for other cryptocurrencies. You should see your cryptocurrency as gold that people regularly exchange with other precious metals and use for purchase; then you will have the general idea of how the tax code will treat your cryptocurrency trades.
How does the IRS tax Cryptocurrency?
In the U.S., cryptocurrency is treated as a property or asset and not as a currency like the U.S. dollar. That means in most cases it is treated like real estate or gold, which means when held for investment in most cases it is subject to the short and long-term capital gains tax. So, unless you “Just HOLD” your cryptocurrency, you may owe tax based on short-term or long-term capital gains tax.
The Basic Tax Implications of Cryptocurrency
Listed below are the rules on cryptocurrency and taxes in the U.S. for either investors or a trader:
• It is a taxable event when you trade any cryptocurrency to fiat currency (pounds or dollar),
• Trading cryptocurrency to cryptocurrency is also a taxable event (you have to calculate the market value in USD at the time trade occurs),
• It is a taxable event when you use cryptocurrency to pay for goods and services,
• Giving cryptocurrency as a gift is not a taxable event in all circumstances.
• A wallet-to-wallet transfer of cryptocurrency is not a taxable event.
• Buying cryptocurrency with USD is not a taxable event because you can’t determine the gains, until you trade, use, or sell your crypto.
The bottom line of cryptocurrency is that anything other than buying, holding, or transferring a cryptocurrency from wallet to wallet is a taxable event. These regulations mean that you need a to work with an experienced CPA even if you do a moderate amount of trading. As investors, you should note that even though cryptocurrency is treated as property for federal tax purposes, state and local jurisdictions may see it differently. All crypto investors should obtain proper tax guidance to ensure they comply with all applicable regulations.