Are Cryptocurrency Transactions Taxable?
Are Cryptocurrency Transactions Taxable?
2022.11.17 14:34
Are Cryptocurrency Transactions Taxable?
Budrigannews.com – The question, Are Cryptocurrency Transactions Taxable?
Often overlooked, this question must be answered by every taxpayer who purchases cryptocurrencies. However, there is one important exception: if you only purchase virtual currency, such as bitcoin, you do not need to answer “yes” if you receive a Form 1099. Regardless, you should be prepared to answer yes if you purchased more than a few coins. Even if you do purchase virtual currency, you should also be aware of capital gains tax rules.
Buying and selling cryptocurrencies
Whether buying and selling cryptocurrencies is taxable depends on how you use them. Major cryptocurrency exchanges report customer activity to the IRS using the 1099-K and related forms. These forms report non-employment related income. Both the IRS and customers receive these forms at year-end. In addition, when customers don't report their cryptocurrency income on their tax returns, the IRS flags these accounts and sends an automated CP2000 letter.
Capital gains taxes
As with stocks, bonds, and property, the IRS treats cryptocurrencies the same as traditional assets, such as stocks and bonds. As such, tax rates for capital gains on cryptocurrency transactions range from 0 to 20%. If you sell an asset for a profit within 365 days, you will owe short-term capital gains taxes and long-term capital gains taxes. However, you are not required to report any profit generated by holding on to your cryptocurrency until you resell it.
Staking rewards
The question that arises is whether staking rewards are taxable, but the IRS has not yet decided that staking rewards are taxable. The IRS's concession to Jarrett's suit eliminates the controversy, but it does not answer the question definitively. Taxpayers who are interested in staking rewards should not worry about the implications of the IRS's decision. The IRS's concession will likely be viewed as an attempt to settle the case, but it doesn't answer the question of whether staking rewards are taxable.
Transferring crypto between your own wallets
When moving crypto between cold and hot wallets, it is important to understand how these transfers will impact your tax situation. Most smart crypto investors understand that the safest place to keep HODL assets is in a cold wallet, and should only move them to a hot wallet when they need them. But many crypto exchanges charge transfer fees for transferring crypto from one wallet to another, and you might be wondering if these charges are taxable or deductible as losses.
Keeping records of transactions
If you own bitcoin and have made sales, you must keep records of cryptocurrency transactions to claim the correct tax deduction. While some exchanges provide spreadsheets or other documents that show taxable and nontaxable sales, they may be difficult to read or lack the information you need to calculate taxes. You must determine the correct tax treatment for sales or incur expenses paying an accountant to do so. In addition, if you do not have an account that keeps adequate records, you must track your basis outside of the account.
