With the introduction of digital assets, the IRS interests have observed a paradigm shift. Cryptocurrency is one of the digital assets that have taken the financial world by storm. However, declared as an asset, they are also subjectable to tax. And with the tax season around us, there is a greater need to understand how to pay crypto taxes. And learning about crypto taxes can save one from a lot of trouble including certain illegal activities. The article provides a brief insight into what crypto taxes. Furthermore, there are a lot of online trading platforms available such as https://bitqt.io/ that provide excellent crypto trading services.
Understanding the types.
As mentioned in the IRS guidelines, cryptocurrency is declared as property. Therefore, the coin holders will be subjected to pay capital gains tax. Before the IRS declaration, cryptocurrency was simply considered as another type of currency.
As far as the capital gains taxes are concerned, they are either short-term or long-term. As the name implies, short-term taxes will only be subjected to those assets that have been under your ownership for less than a year. Long-term capital gain taxes, on the other hand, will be subjected to the assets that you have been possessing for more than a year. However, the amount of tax i.e. tax rate will solely depend upon the area you are living in. But as compared to the short-term, the tax rate on long-term capital gains is fairly low.
The interest of IRS
The previous results exhibit that the number of persons paying their crypto taxes is quite low. However, with the help of some strict actions and punishments from the IRS, the amount of crypto owners who are paying their taxes timely is increasing. But why is IRS behind these tax evaders?
International Revenue Service or IRS is a federal taxation body governed by the US. This specific organization is responsible for collecting taxes. Furthermore, if some is attempting to manipulate IRS by following fraudulent ways, the IRS is also can penalize and punish him. Similar to other assets, cryptocurrency holders are also subjected to pay taxes on time, and failing to do so can cause certain problems. The person can end up serving up to 5 years in prison. Or in another case, the minimum fine to be paid will be more than $250,000. Similar to other assets, cryptocurrency will be subjected to seven IRS tax brackets. These 7 tax brackets range from 10% to 37 %. Out of the total 50 states, 47 states have declared their income taxes.
After the declaration by the IRS, cryptocurrency will now also be subjected to income tax under certain conditions. Like if you are working for someone and that employer is paying you in crypto coins. These crypto coins will be regarded as your earnings which are subjected to income tax. And the income tax on your crypto earnings will be deducted in USD.
Explaining the tax forms
Digital trading such as cryptocurrency lies under the Sales and Other Depositions of Capital Assets Form. In this Form i.e. 8949; all the investors including the crypto holders must declare their traded assets. Furthermore, the trading dates are also to be mentioned. A lot of things are to be mentioned and declared including the cost of doing the trade and how much one is making from the trade. It is also mentioned in this specific form whether the asset you are declaring is long-term or a short one. On the other hand, Form 1040 covers all the gains and losses that are linked to the long and short-term goals.
Learning which entities are taxable
Those who are into crypto mining or interested in doing so should be aware of the taxes imposed. If you are looking forward to the mining process, you should know that the process of mining is classified as self-employment and falls into the category of self-employment tax. The rate of tax on the income generated from mining is around 15%. But miners can file returns as they are self-employed and using their electricity.
It should be kept in mind while dealing with a cryptocurrency that buyers and crypto holders are not subjected to any tax. In laymen’s words, those who are into trading need to pay their taxes on time. One good thing though, as cryptocurrency is declared as an asset and a capital gain tax is subjected to such entity, you can claim a loss. Only crypto tokens fall into the category of tax exemption.
The bottom line:
Concluding the discussion, the process of paying crypto taxes is not as complex as one thinks. But one must be well aware of all the factors involved in the process of taxation.