Crypto Tax: Basics You Need to Know Before Buying Your First Cryptocurrency
-
Loading... - Young Willow
- 15 Feb 2023
- 69 Views
- 0 Like
- 0 Comment
Despite its best intentions, Bitcoin and other cryptocurrencies are no longer the discrete and anonymous digital assets they used to be. Paying your crypto tax, while complicated, is a necessary process that protects you from difficult situations with regulators like the IRS down the line.
It’s no secret that virtual currencies like Bitcoin and Ethereum are witnessing exponential adoption worldwide. The number of crypto holders continues to grow yearly, increasing by 39% in 2022 alone.
Unfortunately, cryptocurrency tax reporting is still a labyrinthine mystery for taxpayers. Are all profits made from crypto trading counted as capital gains or ordinary income? Do all my cryptocurrency transactions count as taxable events?
This crypto tax guide will answer all your basic questions and hopefully prepare you for the next tax year.
Why is Cryptocurrency Tax So Complex?
If most of your crypto activity happens on Binance or Coinbase, you shouldn’t have too much trouble. These large crypto exchanges provide plenty of comprehensive tax forms, documents and tools that simplify your tax preparation.
However, the world of blockchain and crypto assets is a deep and dark rabbit hole. The deeper you go, the more complicated your tax return becomes. If you’re actively involved in DeFi, you’re probably earning extra taxable income through staking or airdrops. Some traders also have multiple wallets.
What’s more, not every trade is as simple as swapping fiat currency for crypto. If you’re flipping NFTs or trading crypto-to-crypto, you must always keep records of your purchase prices. Calculating your holding period is also crucial because that can influence whether your profits will be considered short-term or long-term capital gains.
Finally, every country is different. There is no global crypto tax software or income tax rates. What is true for the IRS in the United States is very different from what you can expect in Dubai or Singapore. Read More…
