Crypto has become incredibly popular in the past few years, far more than most people originally expected which means that there are a lot of newcomers to the scene who may have questions. One of the biggest questions people ask is how exactly cryptocurrencies are taxed in the US. Of course, it’s important to be following crypto news now, but it’s even more important to understand the underlying rules behind everything. Crypto news now might not have this info so we hope to provide you with it. You may think that there are probably some incredibly complex taxes that go on with crypto but it’s a lot simpler than you might originally think. We’ll go into detail and hopefully, you’ll be worrying less about taxes and more about making profits once we’re done.
Do I need to report it for taxes?
As you might have expected, cryptocurrencies are taxed in similar ways to stocks. This means that many of the activities involved with crypto need to be reported to the IRS. The IRS treats cryptocurrency as property, meaning that when you buy, sell or exchange it, this counts as a taxable event and typically results in either a capital gain or loss. Keep records of your transactions so that you can provide Cryptocurrency tax reporting to the IRS during the year.
Not everything needs to be reported
There are certain actions you can make with cryptocurrencies that are considered taxable, while others are of course non-taxable. Non-taxable actions include purchasing crypto and keeping it, donating it to certain charitable groups, being gifted crypto, or gifting it to someone and a few others. These can be done as much as you want without needing to worry about taxes or anything of that nature. This means that if you’ve only done these things with your crypto you don’t need to worry about taxes yet.
We say yet as the list of taxable actions contains some of the biggest aspects of cryptocurrencies and the biggest draws. If you decide to sell your cryptocurrency at any point then that is considered a taxable action and must be reported to the IRS as profit. If you lose money on that sale then it could possibly be deducted from your taxes. If you convert cryptos that are also considered a sale and are taxed in a similar manner as simple sales. Considering that people buy crypto so they can sell it later down the line for a profit this means that the main action taken with cryptocurrencies is taxed.
It’s important to understand that any action you take where crypto is technically sold is considered taxable, this includes as previously mentioned when cryptocurrencies are converted from one to another, but this is true for other things too. A common example is when you pay for something using crypto. Since the currency is technically being sold for the purchase it needs to be reported for taxes. While these taxes are all technically downsides they are present with all forms of currency and are unavoidable.
Some good tips
The main one is of course to remember that holding on to a currency is not taxable, so don’t let taxes scare you into selling early. Some newer traders may get scared by the sound of taxes and decide to sell early, not knowing that they’ll have the same taxes regardless.
It’s also useful to know that you can get tax deductions if you give cryptocurrency to certain charitable organizations, however, your preferred organizations may not have crypto as an option so do your research. You also can get slight tax deductions if you sell cryptocurrencies at a loss which while minimal is a nice thing to have and a good system.
The last tip we have applies to taxes in general, but remember that income (including crypto) is taxed only within certain brackets. If your income goes into the next bracket then only that extra income is taxed at a higher rate and everything underneath is at the rate within that bracket, this means that slightly going into higher brackets shouldn’t scare you from having good profits.
Conclusion
Taxes and crypto in general can be quite confusing so we hope that this text has helped you better understand them so you can have fewer worries and more profit.
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