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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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