Crypto currency is one of the hottest trading avenues right now. Crypto currencies are the new favorite among investors, that no investor wants to miss. When it comes to paying crypto taxes, it gets a bit complicated. In the U.S., the IRS treats crypto like any other capital assets such as stocks, bonds but your work will be easier with the best crypto tax calculator. The money that you gain from crypto is taxable, either in the form of capital gains or as income and for how long you held on to it. Your holding period begins the day after you either purchase crypto or make a crypto transaction and continue until the day you trade or sell the asset.
When to use the best crypto tax calculator?
The IRS in 2014 declared that crypto currency is a digital asset rather than a fiat currency. Since then, it’ been taxed the way other capital assets are taxed. Crypto currencies are taxable under both short-term capital gains and long-term capital gains. If your crypto currency has a holding period of 365 days, it will be taxed as ordinary income and subject to short-term capital gains tax. And if the holding periods exceeds more than 365 days, it becomes subject to long-term capital gains tax. Mentioned below are some events that are taxable as both short-term and long-term capital gains-
* Selling crypto currency for fiat currency such as the pound sterling, the euro or the US dollar.
* Using crypto currency to buy goods or service.
You only have to pay taxes on any capital gains that you make from the selling of crypto, not on the full amount of disposed assets. You have to pay on the amount that will be the difference between the price paid for the asset and the price at which it was sold.
Know the exemptions related to crypto tax
There are certain exemptions too which makes crypto non-taxable.
1. Purchasing crypto with cash and holding it-
Buying and owning crypto is not taxable. It will become taxable at a stage when you sell and its gains are “realized”.
2. Donating crypto to an NGO-
When you donate crypto- currencies to a non-profit charitable organization, you are free from paying any taxes and you are able to claim a charitable deduction.
3. Receiving crypto as a gift -
When you someone gifts you crypto, you might not have to incur any tax until you sell your crypto and earn profit.
4. Gifting crypto -
Do you know you can gift up to $15,000 per year per person, without paying any taxes (and a higher amount when gifting it to spouse). But if your gift exceeds $15,000 per recipient, you will need to file a gift tax return. When you transfer crypto to your own account or to someone, it will still count as a gift.
Penalty for undeclared crypto currency
Are you aware of the fact that if you don’t report crypto earnings, it could be deemed as tax evasion by the IRS? The profit that you earn from trading in crypto currency is taxable and you have to pay taxes on that. The IRS has taken several steps over the last few years on how crypto capital gains must be treated, in order to reduce any uncertainty. If you don’t want to fall into the category of tax evader, visit FlyFin at the earliest. Using this best crypto tax calculator will make your journey of investing in crypto currencies a lot easier!
Also read — Can I write off crypto losses on my tax return?