The concept of cryptocurrencies and crypto investment has been around for a couple of years now. It is so that we have seen a continuous increase in mainstream investments and crypto transactions recently. However, we need to start thinking about the crypto taxes and liabilities that come from investing in currencies such as bitcoin, ethereum, and others of the like. This is still a gray area that might confuse people, whether they are investing or not.
The very first thing we need to consider is that cryptocurrencies are indeed taxable. This means that crypto taxes will apply. Nevertheless, we must remember that the IRS sees cryptocurrencies as property, not as dollars or cash. Therefore, crypto taxes will apply for capital gains or losses, depending on our particular case. This means that, just as with any other property, we need to keep track of each crypto transaction.
Cryptocurrencies Are Taxable
Since 2014, the Internal Revenue Service made available its official guidance document regarding crypto taxes. This means that, for the IRS, cryptocurrencies do generate tax liability. However, we must note that cryptocurrencies count as property, not as actual currencies or dollar amounts. The IRS has been focusing more on crypto transactions than they did before. Failing to pay our crypto taxes still constitutes tax fraud. This can result in a minimum sentence of 5 years in prison or having to pay a fine of up to $250,000.
Cryptocurrencies Count as Property
As we mentioned above, the IRS counts cryptocurrencies as property, just as stocks or real estate. This means that you will have to pay taxes on it if there has been a capital gain. However, if you have taken any kind of loss, you might be able to get a lower tax bill.
It is important that we keep track of each and every one of our crypto transactions as accurately as possible. Recording when we buy cryptocurrencies, how much we paid, when we sold them (if we did), and what we received for it is essential. This way we’ll be able to properly calculate whether we had a gain or a loss.
Keep Record of Each Crypto Transaction
Keeping record of each and every one of our crypto transactions is essential. This will help us calculate our investment and allow us to properly file our crypto taxes report. Besides, having a complete and detailed log will help us avoid miss a transaction. Even when involuntarily, it could count as tax fraud, and the consequences are severe. As a result, we recommend hiring the services a professional tax consultant. This way, we will be able to maximize our refund and avoid having to pay a fine.