2 hours ago
6
TEMPO.CO, Jakarta - The United States is currently considered one of the wealthiest cryptocurrency countries, with 15.6% of Bitcoin owners residing in the nation. As a result, clearer policies regarding portfolio transactions, such as cryptocurrency taxes, are required to preserve the financial landscape.
Similar to other investment vehicles, cryptocurrency owners are accountable for the tax responsibilities entailing their trades. Let's learn more about cryptocurrency taxes and how they work, as explained by Investopedia, Forbes, and Britannica.
Understanding Cryptocurrency Taxes
In today’s progressive economic ecosystem, cryptocurrency has emerged as a lucrative investment journey attracting millions of investors worldwide.
When it comes to tax obligations, the Internal Revenue Service (IRS) sees cryptocurrency as property, just like stocks, real estate, or bonds. Investors also owe taxes on any transactional gains involving the cryptocurrency, including earning, trading, selling, and using it as a payment gateway.
According to Forbes, crypto holders must report the gains and losses they receive from any cryptocurrency transactions.
Taxable Cryptocurrency Events
The IRS shares comprehensive guidelines on cryptocurrency taxes, mentioning taxable events that occur when there is either a gain or loss related to crypto transactions.
1. Selling Cryptocurrency for Fiat
Selling cryptocurrency for fiat, such as USD, is considered a taxable event as the transactions generate gains and losses. However, there are several factors that determine the tax liability like profit, holding period, and tax bracket.
While the tax obligation heavily relies on the profit that the owner makes on each transaction, the holding period also impacts the tax liability. Cryptocurrency owned for more than a year will be taxed at the long-term capital gains tax rate when sold. On the other hand, a holding period of less than a year will be subject to ordinary income tax.
2. Cryptocurrency Trading
Cryptocurrency wallets have many types of tokens, with Bitcoin, Ethereum, and Tether standing out as the popular choices. By exchanging one token for another, owners are subject to tax obligations. For instance, if you sell Bitcoin to buy Ethereum, the IRS will view the transaction as a taxable event.
3. Spending Cryptocurrency to Purchase Goods or Services
While many merchants have adopted cryptocurrency as their payment gateway, the government only recognizes dollars. Therefore, the IRS considers the purchase of goods or services to be an exchange for fiat currency, per Britannica.
4. Receiving Cryptocurrency as Payment
As a mainstream financial tool, cryptocurrency can be used as payment for goods, services, and even labor. Today, companies continue to utilize cryptocurrency to pay their employees, leading to regular income tax being charged on any transaction based on this concept.
Cryptocurrency Non-Taxable Events
Depending on the value, not every cryptocurrency transaction is considered taxable.
1. Purchase of Cryptocurrency
Unless the owner sells or trades the digital asset, buying and holding cryptocurrency is not a taxable cryptocurrency event. However, the cost basis of the cryptocurrency purchases in your portfolio may influence the amount of your tax bill.
2. Gifting Cryptocurrency
Gifting cryptocurrency does not result in a tax liability for either the giver or the recipient. Furthermore, the recipient inherits the original cost basis and holding period of the gifted cryptocurrency.
As the cryptocurrency market continues to expand and evolve, understanding how cryptocurrency taxes work can help ensure compliance with the IRS and avoid unexpected financial consequences.
Editor's Choice: 10 Cheapest Currencies in the World 2024, Indonesia is on the List
Click here to get the latest news updates from Tempo on Google News
