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A beginner's guide to cryptocurreny taxes

A beginner's guide to cryptocurrency taxes

Table of Contents

Like all other financial assets such as stocks, cryptocurrency also is treated as an asset, those who engage in the crypto business must pay taxes to the government.
It was very difficult to report and pay crypto taxes in the past due to the anonymity and complexity of the blockchain technology, but as the adoption continues to increase and many people begin to engage in the crypto business, the U.S formulated the crypto taxes law that must be obeyed by all businesses and companies such as cryptocurrency exchanges. The law has the procedures and principles to be followed to report crypto tax to the United States Authority.
If you are doing crypto business or you are a newbie to the crypto market, you need to report the income you earn and pay taxes based on local regulations in your country. Every country has procedures one has to follow to pay taxes. The procedures used in the United States are different from the procedures used in the United Kingdom, Korea, Japan, Tanzania, and other countries. So you should find crypto regulation law in your country and adhere to it.
If you are doing crypto business and have not paid crypto tax yet, it is very important to maintain records of all the transactions you make in the crypto market.

Why is must for you to pay crypto taxes?

It is a must to pay crypto taxes because is a law and the law must be obeyed. Authorities treat cryptocurrencies as assets. People buy, sell, and invest in these crypto assets for profit gain, that’s why the United States Internal Revenue Service(IRS) formulated a crypto taxes law to force crypto participants to pay taxes for every profit they make when investing or trading cryptocurrencies.

How crypto taxes are calculated?

Crypto taxes are calculated based on your crypto earnings. If you are doing crypto trading regularly, your trading earnings will be subject to income tax rather than capital gains tax. But this is done only after losses are deducted and profit realized.

Why crypto profits are treated as capital gains income?

Crypto profits are treated as capital gains income because the Internal Revenue Service(IRS) treats cryptocurrency as property like the way stocks and bonds are treated.

How do you report crypto transactions to the IRS?

If you make money on cryptocurrency, you will pay capital gains taxes in a way that is similar to paying taxes on gains from stocks or bonds.
To calculate profit, take the crypto asset selling price minus the purchasing price (Selling Price-Purchasing price). The answer you get is the profit you make from trading a particular cryptocurrency. After that, your cryptocurrency tax liability will depend on whether you held your crypto asset for less than a year or more than a year.
If you held it for less than a year, you pay a short-term capital gains tax based on the ranges provided by the specific entity.
If you held for more than a year, you will have to pay a long-term capital gains tax.

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