Is crypto currency taxed? The answer may surprise you! If you’re thinking of investing in crypto currency, make sure you understand the tax implications first.
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Cryptocurrency is a digital or virtual asset that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. Cryptocurrencies are decentralized, which means they are not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Since then, numerous other cryptocurrencies have been created. These are often called altcoins, as a collective group.
Cryptocurrencies are not taxed in most countries. This is because they are not considered legal tender. However, some countries have started to tax cryptocurrencies, and more are expected to do so in the future. In addition, some exchanges may require you to pay capital gains tax on your profits.
If you are thinking about investing in cryptocurrency, it is important to be aware of the potential taxes you may need to pay.
What is Crypto Currency?
Cryptocurrency is a digital or virtual asset that uses cryptography for security. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Since then, numerous other cryptocurrencies have been created. These are often called altcoins, as a collective group.
Cryptocurrencies are often traded on decentralized exchanges and can also be used to purchase goods and services. Bitcoin, for example, can be used to book hotels on Expedia, shop for furniture on Overstock and buy Xbox games. However, bitcoin is far from the only cryptocurrency; others include ethereum, litecoin and monero.
Is Crypto Currency Taxed?
The IRS has not yet issued specific guidance on the taxation of cryptocurrencies. But in general, the agency has said that virtual currencies should be treated as property for tax purposes. That means any gains or losses from buying, selling or exchanging cryptocurrencies would be subject to capital gains taxes.
How is Crypto Currency Taxed?
Cryptocurrency is taxed like any other investment asset with the US Internal Revenue Service (IRS). When you sell your crypto for cash, you’re subject to paying capital gains tax. The amount of tax you pay depends on how long you held the crypto and what your marginal tax bracket is for the year. Short-term capital gains are taxed as ordinary income at your marginal tax rate, while long-term capital gains are taxed at a lower rate of either 0%, 15%, or 20% depending on your marginal tax bracket.
There are a few different ways to minimize your taxes on crypto gains. One is to simply hold onto your crypto for more than a year so that you can take advantage of the lower long-term capital gains rates. Another way is to use cryptocurrency losses to offset other capital gains from investments in other assets. You can also use cryptocurrency losses to offset up to $3,000 of ordinary income if your losses exceed your gains for the year.
If you’re not careful, it’s easy to overpay on your taxes when it comes to cryptocurrency. Be sure to work with a qualified accountant or tax advisor to make sure you’re properly reporting your crypto activity on your taxes.
What if I Don’t Pay My Crypto Taxes?
If you don’t pay your crypto taxes, you may be subject to penalties and interest from the IRS. You may also be subject to criminal charges if the IRS believes you have willfully neglected to pay your taxes.
While the IRS has yet to release specific guidance on how to report cryptocurrency taxes, they have issued a few key pieces of advice. Based on these advisements, it seems likely that any gains or losses from buying, selling, or spending cryptocurrency would be treated as capital gains or losses (just like stocks or other forms of investment). This means that short-term gains would be taxed as ordinary income, while long-term gains would be subject to the lower capital gains tax rates.
Of course, until the IRS releases more specific guidance, there is always the possibility that they could change their position on how cryptocurrency should be taxed. So if you are planning on buying, selling, or spending any crypto currency in the near future, it’s a good idea to speak with a tax professional first to make sure you are aware of all the potential tax implications.