The cryptocurrency craze seems too good to be true. You can make massive amounts
of money in such a short time that it doesn’t seem real. The flipside, of course, is that
you can lose it even faster.
The other thing to remember is that it is not free money for nothing. You do have to pay
taxes on your earnings from Bitcoin and other cryptocurrency trades and transactions.
The problem is that how you have to pay taxes and how much highly depends on what
country you live in and other factors. You’ll definitely need the advice of a tax expert
before you file your taxes.
In this article, I will go over some of the things to consider when it comes time to pay
your taxes when you’ve been making money with cryptocurrency. Before you start
buying and trading cryptocurrency make sure to find the right attorney by searching on
sites like Vetted Accountants to make sure that you have somebody that understands
the tax implications.
Buying cryptocurrency
In the US and Canada buying cryptocurrency with fiat money doesn’t carry any tax
burden. You can buy up as much as you like and not pay any taxes on them. Once
you’ve bought your cryptocurrency, you can then transfer them to your digital wallet and
still not have to pay taxes on them.
Even if they gain value, you are not on the hook to pay taxes on the profit from them. In
fact, at least in the US, you don’t even have to report your cryptocurrency holdings on
your tax return.
Selling cryptocurrency
Once you start selling or trading the cryptocurrency the clock starts ticking when it
comes to paying taxes. Now you have made some money and will have to pay taxes on
them.
It would seem that they would be counted as money or stocks, but they are actually
considered property. They are not actually a currency even though you can use them to
pay for goods and services. This is considered bartering when you do so.
Because it is property, any profits from the sale will fall under capital gains. The reverse
also holds true so if you lost value at the point of sale then this will fall under a capital
loss.
How long did you hold it?
If it seemed like things were pretty straightforward up until this point, that is about to
change. The type of property changes when you have it for certain amounts of time. If
you bought the cryptocurrency and then held it for over a year before you used it to
make a purchase or traded it, then this is a long term capital gain.
Any amount of time of under a year from when you made the purchase to when you
sold will come under a short term capital gain. Your tax rate will change depending on
the amount of time you hold onto the currency.
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