Many people in the crypto communities happened asking about taxes, because tax season is coming real soon and people are threading to figure out how their crypto dealings will fit in to the whole process.
Not everything crypto-related is taxed. Cryptocurrency is just like any other asset class when tax season comes around. Unfortunately, cryptocurrency taxes appear so complex that few people file them. Others see cryptocurrency as a means to move money illegally – which means avoiding cryptocurrency taxes entirely.
Investors aren’t taxed for just buying and holding cryptocurrency. In other words, you need to sell or trade in order to be subject to taxes. And more broadly, capital gains taxes for crypto functions as it does for other assets: If you lose money on your cryptocurrency trades, you can claim a loss and save on capital gains taxes.
Many investors are thinking how cryptocurrencies are being taxed. The answer to the question is, it all depends on how it was acquired. Bitcoin and any other cryptocurrency are considered as assets (property). That determines the tax treatment of such.
Cryptocurrencies are considered as intangible assets. It doesn’t have any physical substance and its purely digital in nature. Intangible assets are not taxable but it does tax income acquired from them. When it comes to determining the taxation of cryptocurrency transactions, it is important that owners properly track basis. Basis is generally defined as the price the taxpayer paid for the cryptocurrency asset. Treating cryptocurrency, such as Bitcoin, as property creates a potential accounting challenge for taxpayers who use it for everyday purchases because a taxable transaction occurs every time that a cryptocurrency is exchanged for goods or services.
Taxpayers must track their cryptocurrency basis continuously to report the gain or loss recognized on each crypto transaction properly. It is easy to see how this treatment can cause accounting issues with respect to everyday cryptocurrency transactions. Technology to assist taxpayers in this process is being developed currently and some helpful online tools are now available.