It is mere knowledge that most cryptocurrencies are convertible virtual currencies. As such, they act as a medium of exchange, a store value, a unit of account, and a substitution for real money.
Therefore, any profits or income you create from your cryptocurrency is taxable. However, there is much to consider when unpacking regarding how crypto is taxed. This is because you may or may not owe taxes in various situations.
Therefore, in any country, knowing when you will be taxed is vital so that the taxing authorities do not surprise you when they come to collect.
When is Crypto Taxed?
It is essential to know that cryptocurrencies cannot be taxed. As such, you are not expected to pay taxes for holding one. Cryptocurrency becomes viable for taxation as the taxing authorities later treat it as property for tax in various circumstances. They mainly include:
You pay taxes when you sell or use your crypto in a transaction. This is because you trigger capital gains or losses if the market value changes.
When you receive crypto as payment for business reasons, taxation happens as this appears as a business income.
Types of Crypto Tax Events
Some of the taxable events in crypto mainly include;
Exchanging crypto for government-issued currency, majorly known as fiat currency.
Paying for goods, services, or property.
Exchanging one crypto for another crypto.
Receiving mined or forked crypto.
However, some events are not taxed according to the significant taxing authorities. They include;
Buying crypto with fiat money
Donating crypto to a tax-exempt non-profit or charity
Giving crypto as a gift to a third party.
Transferring crypto between wallets.
Can I Avoid Paying Taxes on Crypto?
There are no legal ways to avoid paying taxes on your crypto except not using it. You will eventually pay taxes when you sell the crypto, convert it into fiat, exchange it, or even trade it.
Besides, you pay taxes when your crypto experience an increase in value.
The payment of taxes on your crypto when you realize a gain only occurs when you sell, use, or exchange it. Holding crypto is not a taxable event.
Do you Pay Capital Gains on Crypto?
Crypto is taxed like stocks and other types of property. When you realize a gain after selling or disposing of crypto, you're required to pay taxes on the amount of the gain. The tax rates for crypto gains are the same as capital gains taxes for stocks.
Investing in crypto involves recording your gains and losses, accurately reporting them, and paying your taxes. Like every investor, you want to keep this tax burden to a minimum.
Comments