If you’ve gone deep in the current crypto craze, you might need to prepare your heart once you do your crypto taxes.
Crypto may have started out as a humble money gig, but with its total value at nearly $2 trillion, many are betting it’s “the future of money.”
However, its growing popularity has come with a literal cost. As the crypto’s worth soars, The US Internal Revenue Service (IRS) is well clued up and running in as well to impose taxes.
The IRS has classified cryptocurrency as an “intangible property for tax purposes,” which basically means that whatever price the digital token is sold at, they are subject to capital gains tax rules.
Capital gains taxes depend on the duration of time you’ve held onto your crypto. If you haven’t yet reached at least a year, your gains are taxed at your regular income tax rate.
But if you’ve been owning the coins for more than 12 months, you’ll be paying much lower.
As the IRS tightens its rules on crypto, we’ve listed down all the crypto tax transactions that you might not know are costing you heaps.
BTC total market cap at $796.22 billion in the daily chart | Source: TradingView.com
Crypto Taxes: On Purchasing
Businesses and shops are gradually incorporating virtual currency as legitimate means to purchase goods or services.
With this, however, your purchase counts as a sale of that crypto and you’ll owe capital gains taxes. So even arbitrary purchases – like coffee and sandwiches – can add up to a significant sum by the end of the year.
Not only that: you’ll also have to pay any applicable sales tax.
Yes, you read it right. Even the most basic activity in crypto triggers a taxable opportunity in the eyes of the IRS.
If you increase your total amount of coins by mining it, it becomes your regular taxable income which makes you owe at a regular income tax rate.
If you spend or sell them later at a certain profit, on the other hand, you still would owe capital gains tax rate, depending on how long you’ve possessed it.
Related Reading | US Introduced Crypto Tax Fairness Act to Adopt Crypto As Payment Method
Whatever the occasion, you should be aware that the IRS is always breathing down your neck for taxes – whether you give or receive crypto as a gift.
Last year, the IRS announced a $15,000 threshold as the amount at which the gift isn’t classified as income.
But there are a lot of nuances if it’s a crypto gift.
Since their values fluctuate frequently, you are subjected to a capital gain and you’ll be thus required to pay capital gains taxes based on how much you profited from them.
With play-to-earn (P2E) online games that reward players with DeFi tokens on the rise, many are tuning in the industry as a new passive source of income. Obviously, these aren’t exempt from taxes.
As players increase their financial assets in the real world, taxes are going to be inevitable, unlike in traditional gaming wherein rewards only operate within the game itself.
Related Reading | US Lawmakers Reintroduce Bill to Provide Tax Relief for Small Crypto Transactions
Featured image from ITB, chart from TradingView.com