Are you preparing for the new year and wondering how to calculate and pay your cryptocurrency tax? Wonder no more! In this article, we will walk you through the process of calculating and paying your taxes on cryptocurrencies.
1: Calculate Your Taxable Income
Cryptocurrency is a digital or virtual asset that uses cryptography to secure its transactions and to control the creation of new units. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control.
Since cryptocurrencies are not recognized as legal tender, you may be taxed on cryptocurrency income in the same way as you would be taxed on any other type of income. For example, if you earned $10,000 in cryptocurrency in 2018, you would likely have to pay taxes on that income at your marginal rate.
However, there are a few caveats worth noting when it comes to taxation of cryptocurrency: first, because cryptocurrencies are not backed by anything physical (like gold or silver), they may be considered a form of “virtual” wealth for tax purposes. This could lead to a lower taxable income due to capital gains distributions and other deductions being unavailable. Second, because cryptocurrency is still relatively new and there is no uniform standard for reporting cryptocurrency income (or losses), it can be difficult to track and report your gains and losses accurately. If you do experience significant crypto-related fluctuations in your taxable income over the course of the year.
2: Determine Your Cryptocurrency Capital Gains
It can be difficult to determine your cryptocurrency capital gains, but there are a few things you can do to help. First, understand that you could have capital gains if you sell your cryptocurrency for a higher price than you bought it for. Second, consider whether any losses you incurred during the course of owning your cryptocurrency qualify as a deduction. Finally, consult with an accountant or tax specialist to get an accurate assessment of your situation.
3: Report Your Cryptocurrency Gains On Your Taxes
When you make a profit from your cryptocurrency holdings, it’s important to report that on your taxes. You can use crypto tax filling software like Koinly to make the whole taxation process easier for you. There are a few things to keep in mind when filing your taxes:
-Gain or loss from trading cryptocurrencies is taxable, just like any other investment. Make sure you track your gains and losses so you can properly report them on your tax return.
-Many digital wallets allow you to cash out your cryptocurrencies for real world currency. This income is taxable, so make sure to report it on your tax form.
-If you hold cryptocurrency as an investment, the value of the coins will naturally go up and down over time. You’ll need to account for this fluctuation when calculating how much money you’ve made or lost from your cryptocurrency holdings.
4: Pay Your Taxes With A Credit Card Or Bank Account
If you are using a taxable account to pay your taxes, you will likely have to pay taxes on the gains from your cryptocurrency as well. The fair market value of cryptocurrency when you cash it out is considered taxable income. If you use a credit card, the interest and fees associated with the card will also be taxed.
5: Keep Track Of Everything
Cryptocurrencies are becoming increasingly popular, and as such, certain aspects of their use may be taxable. For example, if you make a profit from trading cryptocurrencies, you may have to pay taxes on that income. It’s important to keep track of all your cryptocurrency transactions in order to ensure you’re compliant with tax laws.
Conclusion
As you can see, it is not that difficult to calculate and pay your cryptocurrency tax. By following these simple steps, you will be well on your way to avoiding any nasty surprises at the end of the year!
