The cryptocurrency world is getting more sophisticated, and it’s vital to get a deeper understanding of cryptocurrency taxes. Whether you are an individual or a business, cryptocurrency taxes can be very confusing. There are many misconceptions that people seem to believe. In this blog post, we’ll explore the basics of cryptocurrency taxes.
Cryptocurrency taxes are one of the newest and hottest topics in cryptocurrency today. If you’re new to cryptocurrency, it’s likely you’ll need a tax consultant in San Diego to assist you. Taxes are probably the last thing on your mind, but this guide has you covered. Read on!
Is income from cryptocurrency taxable?
For tax purposes, cryptocurrencies are treated by the IRS as property and assets. So, much like for bonds, you’ll have to report stock capital gains and losses. The crypto tax rates depend on the time elapsed between buying and selling (how long the position was open) and the individual tax bracket.
For investors who only buy a cryptocurrency and never sell, their taxes are easy. There are no gains with no selling activity, and therefore, no capital gains taxes to pay. For situations when a cryptocurrency is sold within one year of its purchase (short-term capital gains), standard income tax rates apply. They are, in principle, higher than those owed by longer-term holders who pay long-term capital gains taxes.
Taxable events related to cryptocurrencies are the selling and trading of crypto, the use of crypto for purchases of goods or services, and crypto receipts resulting from mining, fork, airdrop, or exchange for goods and services. Capital gains or losses are calculated using formulas based on each transaction’s cost, including fees and commissions.
The IRS has tightened its control and has introduced new reporting rules in the last couple of years, determined to prosecute crypto users who have not reported crypto taxes. They’ve now implemented questions to all taxpayers about whether they had any transaction related to cryptocurrencies. Falsified answers expose the taxpayers to severe fines and even criminal investigations.
What happens if you don’t report cryptocurrency on taxes?
Any event in which you make some profit related to trading with cryptocurrencies is considered a taxable event and has to be reported to the IRS. Typically, it creates a tax obligation. When you exchange goods with and for cryptocurrency, it’s also a reportable transaction. And because cryptocurrency exchanges rarely report third-party transactions (like stock brokerage companies do), this leaves the reporting solely on the shoulders of taxpayers.
When filing your tax returns, you are obligated to answer questions related to cryptocurrencies, which are essentially the same as those asked when reporting gains or losses on stocks and equities. Failure to file these forms will most probably trigger a tax audit. Therefore, to avoid an IRS audit and any subsequent consequences, you should file your taxes pertaining to cryptocurrencies regardless of your gains or losses.
Need an experienced tax consultant in San Diego? Reach out to David York’s Tax Service
Filing your taxes can be stressful, but who says it has to be? Get in touch with the leading specialists at David York’s Tax Service to get a better understanding of cryptocurrencies and all that the process entails. Let us assist you in preparing your tax return, wherever you’re located in San Diego County. Make an appointment with our team today!