Most cryptocurrencies, according to the Internal Revenue Service (IRS), are convertible virtual currencies. This means they can be used as a medium of exchange, a store of value, a unit of account, and can be used in place of real money.
This also implies that any earnings or revenue generated by your cryptocurrencies are taxable. However, there is a lot to unpack when it comes to cryptocurrency taxation because you may or may not owe taxes in certain scenarios. If you own or use cryptocurrency, you should be aware of when you will be taxed so that you are not caught off guard when the IRS comes to collect.
Cryptocurrency is taxed when it is sold or exchanged for another currency, whether that be a fiat currency or another cryptocurrency. This includes selling or trading cryptocurrency for cash, using it to purchase goods or services, or exchanging it for another type of cryptocurrency.
For example, if you purchase one Bitcoin for $10,000 and later sell it for $15,000, you would have a capital gain of $5,000, which would be subject to capital gains tax. The same applies if you trade your Bitcoin for another cryptocurrency, like Ethereum.
Additionally, if you are mining cryptocurrency, the fair market value of the cryptocurrency on the date it is received will be included in gross income and is subject to self-employment tax if the individual is a sole proprietor or ordinary income tax if the individual is an employee.
It’s also important to note that even if you use cryptocurrency for everyday transactions, such as buying goods or services, you will still be subject to capital gains tax on any increase in value from the time you acquired the cryptocurrency to the time you spent it.
It’s important to keep accurate records of all cryptocurrency transactions and to report them on your tax return. Failure to report these transactions can result in penalties and fines.
Several types of cryptocurrency transactions are not considered taxable events, including:
It’s important to note that tax laws and regulations can vary by country and jurisdiction, and it’s best to consult with a tax professional to ensure compliance with local laws.
Co- founder at Ecosleek Tech Research and Branding at MythX. Talks about #gaming, #metaverse, #blockchain, and #softwaredevelopment
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