Cryptocurrency is a decentralized digital currency that has a digital representation of value. It has no physical form like the traditional fiat currency. It has been over a decade since it has made its first appearance in the way of Bitcoin.
Cryptocurrency transactions do not use any third-party platform like banks or other educational institutions. The transaction happens directly between the sender and receiver. All the transactions are done over a public ledger network.
However, even if the government has not accepted the cryptocurrencies in the mainstream, they have accepted the cryptocurrencies. They have passed bills to charge tax from the crypto traders.
What are the implications when you file your taxes?
After the rally of 2017, when the bitcoin’s price evaluation reached the $20000 mark, the government was able to understand its importance. It made them take some initiative to charge Crypto investors with taxes.
A Cryptocurrency Primer
Let me get something clear about the cryptocurrencies. Cryptocurrencies are digital currencies, but they are coins. It would be best if you had a digital wallet to store them. There are several platforms that deal with crypto tokens. Platforms like Coinbase, Kraken, Trend Catcher, and Jaxx are some of the most popular ones.
The first cryptocurrency that was introduced in the market is Bitcoin. And since the last decade, it has kept its position of the top cryptocurrency used worldwide. With the help of the digital wallet, you can keep track of the cryptocurrencies.
Cryptocurrency is still in its testing phase, so do not expect it to be smoothly regulated. However, the use of cryptocurrencies has become common in online gambling sites. You can even get your favorite Lamborghini with the cryptocurrencies.
Cryptocurrency as property
Cryptocurrencies are being considered as properties after the rally of 2017. If you are using cryptocurrency for any trade purposes and not paying taxes on the crypto profits, you might be doing the wrong thing.
Cryptocurrencies are considered as property and fall under the tax-paying protocol. The IRS has considered cryptocurrencies as property since 2014. Taxpayers are asked to file a tax return on the crypto profit they have made alongside the conventional profits.
The price evaluation of the cryptocurrencies can be calculated by converting them into fiat currencies and taxed accordingly.
But to pay taxes on cryptocurrency profit, you need to keep tabs on every transaction you have made.
Capital Assets and Cryptocurrencies
If you want to sell some of your assets to make a profit out of it. For instance, your car, home, or land pieces all fall under capital assets. The same thing can be said for cryptocurrencies. The only difference is that cryptocurrencies are digital assets.
As you pay tax on the capital gains, you must pay taxes on the crypto gain. You can go through all your cryptocurrency trading deals and calculate all your profits and loss.
However, if you sell your property as a trade or business and that property does not fall under capital assets, then that property is taxed for ordinary income. The same concept can be used for the cryptocurrency as well.
Cryptocurrency and turbo Tax
There are several tax-paying websites for cryptocurrencies. Among the top websites that are trusted by most of the crypto, taxpayers are TurboTax.
With the help of this platform, you can easily file your tax. Turbo tax goes through all your transactions and calculates them for you efficiently.
You will also get a mini widget that will help you with the given four situations.
- Sold cryptocurrencies
- Converted cryptocurrencies into other fiat currencies.
- Exchanges of cryptocurrencies.
- Used cryptocurrency for products and services.
In addition to this, TurboTax also helps you download CSV files of the digital wallets.
Cryptocurrencies are getting popular, and people are looking for ways to regulate them. Now that the government has started taxing crypto profits, this might be a sign that soon, cryptocurrency can become a mainstream currency.