4 Things You Need to Know About Cryptocurrencies and Taxes

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    If you invest in cryptocurrencies, you need to be prepared for the tax consequences. Around the world, governments are responding to the rapid growth of cryptocurrency with tax rules to bring this unique asset in line with other investments.

    Unfortunately, some of these new rules are at odds with users’ desires to use cryptocurrency as a functional means of exchange, but they’re the rules investors and traders need to follow unless they’re prepared to face serious consequences. G20 countries are teaming up to track down tax evasion through cryptocurrency, and it’s more important than ever that you understand the tax implications of trading crypto.

    If you realize you have not paid taxes on cryptocurrency investments or you are already facing an audit, Crypto Tax Lawyer can provide guidance and advocacy. Whatever you need, they provide crypto services to help you navigate any tax situation.

    In the meantime, these are four things you need to know about how cryptocurrencies and taxes work.

    1) You Could Owe Taxes When You Sell Crypto

    Cryptocurrencies are considered an asset, like a commodity. Whenever you sell an asset, the profits from such a sale can be taxable. As with other assets, you don’t have to worry about paying taxes when you buy crypto (i.e., there is no sales tax for buying cryptocurrency), but you do have to worry about taxes when you dispose of crypto (i.e., sell, trade, or give it as a gift).

    Record all of your cryptocurrency transactions, including the date when they happened and the amount that you spent or gained from the transaction.

    2) You Can Claim Capital Losses on Your Crypto Tax Bill

    It’s not all bad news, though. As crypto investors have seen in recent years, sometimes investments don’t pay off, and you’re left with a loss. Fortunately, you can claim capital losses against your capital gains (the profits you earn from selling an investment).

    No one wants to lose money on an investment, but with proper tax planning, you can mitigate your final tax bill.

    3) You Could Owe Taxes When You Buy Goods & Services with Crypto

    This rule can definitely catch crypto users by surprise. The drop in Bitcoin prices has led to fewer companies accepting Bitcoin and other cryptocurrencies, but there are still a number of goods and services that you can purchase with crypto.

    When you do this, you are disposing of an asset, and it is a taxable event. You will have to pay taxes as though you sold your asset based on the fair market value of the cryptocurrency you traded at the time of the exchange. Keep this in mind when you make purchases with crypto.

    4) How Often You Trade Crypto Matters

    How often you trade can also impact how much you owe in taxes. As a general rule, if you only make occasional crypto trades, your profits from crypto will be treated as capital gains, and only 50% of the profits are taxed. There are no taxes on the other 50% of profits. However, if you frequently trade, it may be considered business income. All business income is taxable.

    Managing crypto and your taxes doesn’t have to be hard, but it helps if you’re informed and have a tax plan for your investments.

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