Gateway Gazette

Understanding the Basics of your Cryptocurrency Taxes

Note: this is a US article*

Cryptocurrency isn’t a reliable investment option since its prices go up and down like a rollercoaster and offer no stability to an individual.

The nature of this digitized investment option is somewhat volatile and lacks assurance that an investor seeks an investment opportunity.

Furthermore, CryptoCurrency is decentralized, which makes it a popular hub for illegal transactions conveniently.

Since 2009 till now, people have been waiting eagerly for Bitcoin to change the economic dynamic of the world, but its unpredictable nature has made this feat impossible.

The uncertainty of cryptocurrency losses and benefits takes a back seat in the financial industry wherever the IRS is concerned.

The decentralized nature of Cryptocurrency makes the practicality of it in the real world quite murky, but that’s not enough to minimize your taxation liabilities.

Not many people are aware that they are obligated to pay taxes on their Bitcoins, which can make them come under the legal radar of the IRS.

Keeping this in mind, we have put together an essential guide to simplify the taxation proceedings of Cryptocurrencies below:

CryptoCurrency is Not a Currency

No matter how you look at it, Bitcoin and other cryptocurrencies are perceived as fiat money by a vast majority of the audience.

But despite your perceptions and understanding of this economic commodity, the IRS treats it as a property.

Why did the IRS perceive CryptoCurrencyas such?

The answer lies within the proceedings of CryptoCurrency transactions. When you buy Bitcoins, you hold onto them for a while and then sell them as per the current market rate.

The same is the case with the buying and selling of any real estate property.

There is no guarantee that you will sell the currency for the same value as when you bought them.

Pay Taxes Only When you Sell Crypto 

It might sound liberating, but it isn’t some leeway for you to hog the money you owe the government.

The IRS decided on this rule by employing basic knowledge and common sense on a simple buying and selling transaction.

When one buys CryptoCurrency, they are investing their money in the cause, which equals the acquisition of a property.

You don’t bag any profits when you buy a property, but you can secure its proceedings when you sell it.

The rule is simple; you are taxed on your earnings and earnings and not for investing.

Cryptocurrency Income & Taxes Are Taxable

Some self-proclaimed geniuses might think that by choosing cryptocurrency as their payment method, they can somehow bypass their taxation liabilities.

IRS debunks the likelihood of any such possibility by asking employers to pay their employees in CryptoCurrency after taking care of their income taxes.

No matter who you are and what payment method you are choosing, you’ll have to pay your income and property taxes just like everyone else.

Understand Cryptocurrency Mining

CryptoCurrency minors are in no way exempted from their taxing responsibilities.

IRS has made sure to tie all the loose ends and block all the loopholes while devising the taxation laws for the CryptoCurrency industry.

You are earning money by setting up the mining net for the CryptoCurrency. Therefore, you must pay your income tax dues as soon as possible.

Vigilance saves you from Trouble

People think that they can take advantage of the unorganized structural framework of the IRS as it struggles to bring tax evaders to justice but know that anyone who went against them didn’t fare well in the accountability court.

IRS must know about all your Cryptocurrency transactions from buying and selling to renting and everything else associated with your digital finances.

One wrong or missed tax filing can be viewed as intentional, and you’ll have to answer in the accountability court for minor mistakes as well.

Practice vigilance while filing for taxation proceedings to save yourself from getting on the wrong side of the law.

Benefits of Gifting CryptoCurrency

If you want to donate or gift someone money, then use CryptoCurrency as it is beneficial for both you and the receiver.

IRS doesn’t enforce taxation liabilities when you send your Bitcoins as a gift or donation to someone. Similarly, the receiver doesn’t have to pay any charges and taxes when they accept your gift or donation.

Crypto Exchange & Taxes

People might argue that exchanging crypto for crypto shouldn’t be viewed as a buying and selling transaction, but that’s how it is.

An individual doesn’t merely exchange their Bitcoins with other types of coins. Instead, they first sell their coins then buy other coins using their original earnings.

There might be a slight fluctuation in pricing during the transaction, but nothing too extreme to make you regret your crypto to crypto exchange.

Bear in mind that all tax reporting and payments are made in US dollars and not in CryptoCurrency.

Conclusion:

Government views CryptoCurrency as a decentralized and unchartered territory that promotes illegal transactions.

They are unhappy with the way people have started using it despite knowing its volatile nature.

It leaves their accountability system in shambles, yet the taxation liabilities are binding for cryptocurrency investors because of the IRS.

About the Author:

Alex.J a Software Engineer From Virtual University. He is a Marketing Executive at FAPL & the Digital Marketing Analyst for Black INK The Accounting & Bookkeeping Services Providers for Small Businesses in the United States.




Editor’s Note:

The CRA generally treats cryptocurrency like a commodity for purposes of the Income Tax Act. Any income from transactions involving cryptocurrency is generally treated as business income or as a capital gain, depending on the circumstances. https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.html

 

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