Many of us have dived into crypto with all the potential benefits to gain in mind but the common side that is overlooked is obviously how to go about all this when it comes to your taxes. While you might not be a professional in regards to the rules of it all here's 7 questions to ask your tax professional in regards to your crypto.
- What kind of tax am I expected to pay on my cryptocurrency?
-treated the same as any property property transaction. Depending on when its sold can be subject to Short term capital gains tax, or Long term capital gains tax
- I have some transactions where I didn't sell my crypto for regular currency. I sold some Ethereum and bought bitcoin instead. Do I need to pay taxes for such a transaction?
-Anytime a coin is sold, whether it be for fiat, or swapped for another gain, or even gifted a taxable event has occurred.
- . Some part of my salary is paid to me in bitcoin. How do I report this income given that the price of crypto keeps fluctuating
- The salary you receive in crypto has to be added to your taxable income when it comes to calculating your taxes. The IRS follows a fairly straightforward rule here — the fair market value of the bitcoin on the date that you received it is what will be added to your gross income. In this case, it's important for you to maintain accurate records as to when the cryptocurrency was credited to your account.
- I am mining cryptocurrency. Do I have to pay self-employment tax? What expenses can I deduct when I report my taxable income?
- The answer to this depends on the nature of mining. For instance, you might be mining bitcoin but as an employee working for someone else. And the bitcoins mined are not in your name. In this case, you would be treated as an employee and would not be subject to self-employment tax.
You might also be mining cryptocurrency but as a hobby, rather than a full-time business. In this case, it is not a self-employment activity and you wouldn't have to pay self-employment tax. At the same time, you wouldn't be able to deduct any mining-related expenses either.
If you're mining cryptocurrency in your own name and as a business, you would be considered self-employed and expected to pay self-employment tax (SECA). You would also be able to deduct certain expenses (hardware and software costs, electricity and utility bills, etc) from your profits in order to determine your net taxable income.
- The IRS doesn't specifically talk about the tax treatment for cryptocurrency that you receive in a hard fork. Do I need to disclose this in my tax return?
- Most experts believe that the fair market value of the coins received on the date of the fork is ordinary income and is taxable. Plus, this fair market value also becomes your cost basis when you end up selling the forked cryptocurrency.
- What if I haven't maintained accurate records of my crypto transactions? What can I do to remedy the situation now?
- As a starter using software's that track these things for you such as Koinly can mae this process dramatically easier. If there are still some discrepancies (for instance the exchange you used is no longer operational), utilize an estimate and explain why you have used such an estimate in your tax returns.
- I have not been reporting my crypto investment in my tax returns for several years. What can I do about it now?
- Since the IRS is cracking down on crypto tax evasion, you need to act quickly. In all likelihood, you will need to file an FBAR, which would include making unprompted disclosures, amending past tax returns, and filing missing returns.
Hope this helps!
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