New tax season is around the corner again, and Americans are busy arranging all their records for a proper tax filing. But what about crypto tax filing? Cryptocurrency has created a whole new host of questions regarding taxes. If you hold bitcoins or other cryptos, do you have any cryptocurrency tax calculator? Do you realize a taxable gain from your bitcoin transactions and, if so, how much? Generally, if you received bitcoin for providing goods or services (employment, freelance work), then such a transaction would be subject to ordinary income tax on the value at the time of the transaction.
IRS’s view of cryptocurrency holding
The Internal Revenue Service (IRS) treats digital currencies like Bitcoin as “property” rather than “currency” for taxation. This means that digital income, capital gains, and cryptocurrency taxes are taxed similarly to other forms of payment and property.
Do cryptos hold entitled to tax implications?
It’s important to realize that cryptocurrency transactions can have tax implications. Therefore, it’s best to talk with a tax professional regarding your situation rather than trying to crunch all the numbers yourself – especially if you’re dealing with hundreds or thousands of transactions like some cryptocurrency traders do. Cryptos are not exempt from taxes, so you should be prepared to pay your fair share.
Various tax implications on crypto trading
When it is not taxable –
- When you buy cryptos with your cash and hold it, then it is not taxable. Only when you sell it through a cryptocurrency tax calculator showing some gains in your selling, then it is taxable.
- When you give your cryptos to nonprofit and charitable organizations exempted from tax, your transactions are nontaxable.
- When someone gifts you crypto, you are also exempted from taxes unless and until you are selling it and having some gains.
- If you are giving some bitcoins to your loved ones (maybe your spouse), you will also not be entitled to taxes if not your gift amount is more than $15000. In that case, a gift tax return has to be filed, which is also tax-deductible.
- If you transfer cryptos into your other accounts and wallets, no tax has to be given.
When it is taxable (capital gains) –
- When you sell your cryptos at a profit margin to acquire a good amount of money, your selling will be taxable. Otherwise, you can be exempt from taxes if you are selling at a loss.
- When you convert your cryptos from one type to another type (suppose you are converting from Ethereum to Dogecoins), you are also liable to taxes. You are selling one asset to buy another one. So, IRS considers this a property transfer. Hence it is taxable.
- If you are buying some goods by selling your cryptos, you are also not exempted from tax deductions.
When it is taxable (income)
- If you receive your salary in the form of cryptos, it is also coming under taxation.
- Professional miners have to pay self-employment tax (SE).
- Various incentives in crypto dealings are also entitled to taxable income.
- If you are getting some good returns by holding your cryptos, you are also entitled to taxes.
- If you have some airdrops from some crypto companies as their marketing strategies, then also IRS demands taxes from you.
Whether miners have to pay taxes for crypto mining as a profession?
Taxation of virtual currency miners depends on whether the activity is a hobby, trade, or business. Any compensation received by blockchain miners is taxable business income (e.g., self-employment tax and income tax at progressive rates). If the IRS decide it to be a business (e.g., if they have investments in mining hardware and/or internet connectivity, receive recurring payments for processing transactions, and the mined cryptocurrency is used for other business purposes), then it is taxable. Whether their activities constitute a trade or business will be based on the facts and circumstances in each case and could change depending on issues like frequency, duration of the activity, and changes in the value of the cryptocurrency over time.
How to file your crypto tax?
Form 8949 is the IRS form where crypto trades are recorded. Form 8949 is used to collect information from each crypto transaction you had during the tax year. For all calculations of capital gains and losses, IRS uses this form. Form 8949 is for investors who have had a considerable number of purchases and sales of crypto. Form 1040 Schedule D is for filers who have capital gains and losses to report, including those from investments such as bitcoin.
Cryptocurrency Tax Calculator
Each cryptocurrency tax calculator includes instructions on how to report the income from your trades, as well as the transactions themselves, on IRS form 8949. The ability to input your exact cost basis and calculate your realized gains gives you much more accurate estimates for filing with the IRS, allowing you to plan for the taxes you’ll owe. You can use the best in the market, i.e., Flyfin. Their software platform powered by AI helps you resolve all your crypto tax problems in minutes.
Penalty – Cryptocurrency, or digital/virtual currency, provides a new opportunity for tax avoidance, trading, and investing. Since cryptocurrency has emerged as a growing market, there is also a growing trend of tax evasion due to the anonymous nature of transactions. These transactions provide an advantage to those who consciously attempt to avoid paying taxes on their profits. Therefore, individuals must be aware of the tax implications when they invest in cryptocurrency and seek professional help to prevent mistakes in reporting cryptocurrencies.
Summary: Most people who make money from investing in cryptocurrency, using it to buy
and sell stuff, or accepting it as payment know that they owe taxes if they made a profit trading it or using it. If they accept it or make income from it, they owe taxes on its income. So for all these transactions, you need a cryptocurrency tax calculator that is the best in the market, and when it comes to AI-enabled tax platforms, Flyfin is the best.