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5 Essential Questions About Crypto Taxes:
Tax treatments for crypto have been subjected to severe scrutiny, and there have been major developments around this particular issue in the last decade. There are a number of guidelines that are applicable in hard-forks, staking, gifts & payments. Bitcoin Trading will take you through the technicalities of such scenarios and will help you to understand the latest trend around it.
Here are some pressing questions:
Q.1 Paying taxes on crypto is mandatory despite not receiving any tax forms from the exchange I trade through?
The answer to this pressing question is “YES.” IRS treats all the virtual currencies as an integral part of the property. Moreover, users are supposed to report the subsequent gains as well as losses that occur after selling that particular property. All the transactions are required to be legally reported if any crypto is sold on any exchange or it might also be sold through OTC platforms, i.e., Over-the-Counter.
Some users might also trade them with their respective acquainted ones. Whatever the case may be, the transaction must be reported to avoid any issues down the line. Regardless of the nature of the transactions, i.e., off-chain & on-chain transactions, they both fall under the purview of this particular treatment. Furthermore, all the crypto that is usually transferred via different crypto wallets also comes under this rule/treatment.
Q.2 What happens if your exchange marks the crypto that you transferred to yourself as taxable?
Needless to say that millions of traders possess multiple accounts & wallets, which enable them to transfer their crypto to different accounts seamlessly. It is to be noted that all the transactions subsequently conducted through the crypto wallets that you control & own will not be taxable. However, the very fact that you own multiple wallets & accounts might become a headache, especially during the tax reporting.
This is because wallets & exchanges run short on context, and there is every possibility that a particular transaction might even be counted as taxable. In order to steer clear of such complications, you are supposed to maintain digital records of all the transactions you conduct or just simply white-label all the existing wallet addresses.
Q.3 What if I purchased new crypto through the crypto that I owned previously? Will it also fall under any taxable event?
A very common example of such an event can be the purchase of NFTs, i.e., Non-Fungible Token. In order to make a successful acquisition in the Ether, a certain on-ramp used to be a necessity. As per the guidelines laid down by IRS, users are supposed to assess the accurate market value when transactions are conducted through two separate currencies.
The difference in the amount thus occurred must be reported, and it may be the difference between the eventual sale amount or the basis amount. It might be possible that the exchange that you usually trade through does not facilitate you with such documentation. So, you can resort to “Messari” & “CoinMarketCap.”
Q.4 If I earn any crypto through forking or staking, will that be taxable?
Yes, it will be treated as taxable according to the clear guidelines laid down by the IRS. Any crypto that is obtained through staking or forking will be treated as an ordinary income. It will be based on the crypto’s present market value at the time of receiving it. All the unclaimed rewards must be treated as a grey area, and this warrants a consultation with a certified tax pro.
Q.5 Does crypto fall under the income tax bracket, or should it be treated as a Captial gain?
Well, it entirely depends on the circumstances involved. All the crypto which is eventually disposed of will be generally treated as an exclusive capital gain or loss. On the other hand, any crypto that is obtained through forking or staking will be considered your ordinary income. However, there are some major exceptions to it, such as if you receive any crypto as a part of any “bona-fide gift.” There are numerous tax platforms, and you can opt for “April” to avail of an unmatched accuracy in the filing along with an appropriate context.