{"id":7358,"date":"2023-09-25T09:21:37","date_gmt":"2023-09-25T09:21:37","guid":{"rendered":"https:\/\/www.irstaxapp.com\/?p=7358"},"modified":"2023-09-25T09:22:24","modified_gmt":"2023-09-25T09:22:24","slug":"cryptocurrency-taxation","status":"publish","type":"post","link":"https:\/\/www.irstaxapp.com\/cryptocurrency-taxation\/","title":{"rendered":"Cryptocurrency Taxation: A Beginner Quick Guide!"},"content":{"rendered":"\n<figure class=\"wp-block-gallery has-nested-images columns-default is-cropped wp-block-gallery-1 is-layout-flex\">\n<figure class=\"wp-block-image size-large\"><picture><source srcset=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-1024x576.webp 1024w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-300x169.webp 300w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-768x432.webp 768w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-150x84.webp 150w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-750x422.webp 750w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-1140x641.webp 1140w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency.webp 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" type=\"image\/webp\"><img src=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-1024x576.png\" height=\"576\" width=\"1024\" srcset=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-1024x576.png 1024w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-300x169.png 300w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-768x432.png 768w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-150x84.png 150w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-750x422.png 750w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency-1140x641.png 1140w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/09\/cryptocurrency.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" class=\"wp-image-7360 sp-no-webp\" alt=\"cryptocurrency taxation\" decoding=\"async\" loading=\"lazy\" data-id=\"7360\"  > <\/picture><\/figure>\n<\/figure>\n\n\n\n<p>Cryptocurrency taxation is the need for the hour. This is so because cryptocurrency has developed into a solid, self-serving financial system in a very short time. On one hand, it has brought in people from different walks of life by being an attractive investment option and promising financial growth. On the other hand, it has also attracted the IRS, leading to clearly charted rules on cryptocurrency taxation.\u00a0 Under the Internal Revenue Code, cryptocurrencies are digital assets treated as &#8220;property&#8221;. Therefore, tax laws for \u201cproperty \u201c transactions also apply to transactions related to digital assets.\u00a0In other words, the digital assets transaction will give rise to Capital Gains or Losses like your house or other assets like shares jewellery.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_62 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6639294c6e9cd\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6639294c6e9cd\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.irstaxapp.com\/cryptocurrency-taxation\/#What_are_digital_assets\" title=\"What are digital assets?\">What are digital assets?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.irstaxapp.com\/cryptocurrency-taxation\/#Seven_Aspects_of_Cryptocurrency_Taxation\" title=\"Seven Aspects of Cryptocurrency Taxation\">Seven Aspects of Cryptocurrency Taxation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.irstaxapp.com\/cryptocurrency-taxation\/#Cryptocurrency_Taxation_Wallets\" title=\"Cryptocurrency Taxation &amp; Wallets \">Cryptocurrency Taxation &amp; Wallets <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.irstaxapp.com\/cryptocurrency-taxation\/#Saving_on_Taxes_When_Investing_in_Cryptocurrency\" title=\"Saving on Taxes When Investing in Cryptocurrency\">Saving on Taxes When Investing in Cryptocurrency<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.irstaxapp.com\/cryptocurrency-taxation\/#Staying_Up_to_Date_With_Cryptocurrency_Taxation\" title=\"Staying Up to Date With Cryptocurrency Taxation\">Staying Up to Date With Cryptocurrency Taxation<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_digital_assets\"><\/span>What are digital assets?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Section 6045(g)(3)(D) of the Internal Revenue Code defines the term \u2018digital asset\u2019 as a digital representation of value recorded on a cryptographically secured distributed ledger or any similar technology. So, a digital asset for the purpose of tax laws in thein the USA means to include (but are not limited to):<\/p>\n\n\n\n<ul>\n<li>Convertible virtual currency and cryptocurrency<\/li>\n\n\n\n<li>Stablecoins<\/li>\n\n\n\n<li>Non-fungible tokens (NFTs)<\/li>\n<\/ul>\n\n\n\n<p>Digital assets, or cryptocurrencies, are not fiat currencies because a government\u2019s central bank digitally issues them as a currency. Some digital assets can be converted to real currency or substitute real currency in crypto exchanges.\u00a0Those cryptocurrencies are often referred to as convertible virtual currency. For example, Bitcoin (BTC) or Ethereum (ETH) can be exchanged for goods or services into real currencies or other digital assets.<\/p>\n\n\n\n<p>Crypto investments are growing in leaps and bounds, but it might be a little intimidating for a beginner to understand and navigate. Websites like <a href=\"https:\/\/cryptocurrencyhelp.com\/\" target=\"_blank\" rel=\"noopener\">https:\/\/cryptocurrencyhelp.com\/<\/a> and others are designed to provide beginners or crypto investors with resources and tips to help make the leap into crypto easier. So, when confused, make sure to consult their expert crypto guides.<\/p>\n\n\n\n<p>With that said, let\u2019s uncover the intricacies of crypto taxation as of 2023:<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Seven_Aspects_of_Cryptocurrency_Taxation\"><\/span>Seven Aspects of Cryptocurrency Taxation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>So, if the cryptocurrency or the digital asset is treated as Property, how does that affect transactions in digital assets? Treating the digital asset means that a person holding or transacting in digital assets as an investment must comply with the following laws applicable to assets treated as property.<\/p>\n\n\n\n<p>1.<strong>The sale or exchange of digital assets held as an investment will give rise to Capital Gains and Losses.<\/strong><\/p>\n\n\n\n<p>In the US, cryptocurrencies are treated as property. Therefore, if you hold digital assets as an investment, then the sale or exchange of digital assets will be subject to capital gains taxes. The IRS divides cryptocurrency taxation into short-term capital gains and long-term capital gains. If cryptocurrency is held for less than 365 before being sold off, then it is subjected to short-term capital gain taxes, which are between 10-37%. Cryptocurrency held for more than 365 days before being sold, then long-term taxes are applicable (0-20%)<\/p>\n\n\n\n<p><strong>2. Selling cryptocurrencies held as stock-in-trade gives rise to ordinary income.<\/strong><\/p>\n\n\n\n<p>If you are in the trade or business of dealing in cryptocurrency, selling or exchanging cryptocurrency will give rise to ordinary gain or loss. Remember, capital gains on the sale or exchange of cryptocurrencies arise when you hold it as an investment.<\/p>\n\n\n\n<p><strong>3. Receiving the property is ordinary income as per IRC \u00a7 61).<\/strong><\/p>\n\n\n\n<p>If you receive cryptocurrency as compensation for goods or services, it is treated as ordinary income. This applies whether you&#8217;re an individual or a business. The fair market value (FMV) of the cryptocurrency in U.S. dollars as of the date of receipt of the digital asset is the income.<\/p>\n\n\n\n<p><strong>4. Gift of digital assets is liable to Gift Tax as per IRC 2501.<\/strong><\/p>\n\n\n\n<p>You will be liable to gift tax if you gift cryptocurrency valued more than the annual gift tax exclusion amount ($17,000 as of 2023).<\/p>\n\n\n\n<p>5<strong>. Reporting Foreign Accounts if you hold digital assets.<\/strong><\/p>\n\n\n\n<p><strong>V<\/strong>aluing more than $10,000 in foreign cryptocurrency exchanges may need to file Form 8938 or <strong>FinCen Form 114a <\/strong>Report of Foreign Bank and Financial Accounts (FBAR).<\/p>\n\n\n\n<p><strong>6. Report requirements by business on cash receipts&nbsp;<\/strong><\/p>\n\n\n\n<p>If a business receives $10,000 or more in cash in a transaction, it must report the transaction to the IRS on Form 8300. This rule has been extended to cryptocurrency transactions, so businesses that accept payments of $10,000 or more in cryptocurrency will also have to report that to the IRS<\/p>\n\n\n\n<p><strong>7. Record keeping Requirements for property as per 26 U.S.C. \u00a7 6001).<\/strong><\/p>\n\n\n\n<p>Like any other type of property (capital asset ), you must keep records of your cryptocurrency transactions to calculate your tax liability accurately.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Cryptocurrency_Taxation_Wallets\"><\/span>Cryptocurrency Taxation &amp; Wallets <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><a href=\"https:\/\/www.forbes.com\/advisor\/investing\/cryptocurrency\/best-crypto-wallets\/\" target=\"_blank\" rel=\"noopener\">Trusted and verified Cryptocurrency wallets<\/a> can be used to do seamless crypto transactions. They work similarly to bank passbooks, keeping records of every transaction, making record keeping and tax filing a much easier job. Crypto wallets are broadly classified into hot wallets and cold wallets.&nbsp;<\/p>\n\n\n\n<p>Hot wallets are online wallets that are incredibly user-friendly. They allow you to easily buy, sell, and trade cryptocurrency. However, hot wallets can also be a little risky because they pose a security risk. To be safe, set a strong password, and don\u2019t share it with other people.\u00a0<\/p>\n\n\n\n<p>Regarding taxation, though, hot wallets make things much more manageable. Hot wallets create records for transactions, making tax reporting extremely simple.\u00a0On the other hand, cold wallets are offline wallets considered safer for long-term holdings than Hot wallets. Cold wallets are generally hardware wallets or paper wallets.\u00a0<\/p>\n\n\n\n<p>Record keeping and return filing is more of a manual task for cold wallets because transactions aren\u2019t recorded the way they are in hot wallets.\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Saving_on_Taxes_When_Investing_in_Cryptocurrency\"><\/span>Saving on Taxes When Investing in Cryptocurrency<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Cryptocurrency taxes are not low by any means. However, being smart about your investment decisions and planning ahead of time can help reduce your tax burden significantly.&nbsp;<\/p>\n\n\n\n<p>The first and the easiest thing you can do is hold off on your crypto assets. Remember, holding crypto is non-taxable! If you hold your assets for over 365 days, turning them into a long-term property gain before selling them, you will save significantly on taxes.&nbsp;<\/p>\n\n\n\n<p>If you have retirement accounts, consider using these for your cryptocurrency investments. You can avoid taxes on your gains until you withdraw the amount by using an IRA account for your investments.&nbsp;<\/p>\n\n\n\n<p>To minimize your loss while selling your cryptocurrency at a lower rate than you initially purchased it, make sure to mention the details when filing a tax return. You are eligible for returns on the losses you incur while selling cryptocurrency.&nbsp;<\/p>\n\n\n\n<p>To save on crypto taxes, you can hire a professional specialising in crypto or use reputed cryptocurrency tax software. There are several <a href=\"https:\/\/www.irstaxapp.com\/2023-list-of-10-best-crypto-tax-software-in-usa\/\">trusted software<\/a> to choose from, and the best one for you depends on your requirements. Someone with a working knowledge of taxes and cryptocurrency can greatly help if you are still new to crypto and investments.\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Staying_Up_to_Date_With_Cryptocurrency_Taxation\"><\/span>Staying Up to Date With Cryptocurrency Taxation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Cryptocurrency taxation isn\u2019t set in stone, and for anyone investing in crypto, it is important to stay up-to-date with <a href=\"https:\/\/www.irs.gov\/businesses\/small-businesses-self-employed\/digital-assets\" target=\"_blank\" rel=\"noopener\">IRS guidelines<\/a>. Cryptocurrency is still relatively new, and the guidelines are far from being static.&nbsp;<\/p>\n\n\n\n<p>You must also record each transaction on top of your crypto records. Doing your tax filings and tax return claims without the correct details will be impossible. By just keeping these few things in mind and religiously following IRS guidelines, you can easily make <strong>cryptocurrency taxation<\/strong> work in your favour.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Cryptocurrency taxation is the need for the hour. This is so because cryptocurrency has developed into a solid, self-serving financial system in a very short time. On one hand, it has brought in people from different walks of life by being an attractive investment option and promising financial growth. On the other hand, it has [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":7360,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[54],"tags":[],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/7358"}],"collection":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/comments?post=7358"}],"version-history":[{"count":2,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/7358\/revisions"}],"predecessor-version":[{"id":7361,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/7358\/revisions\/7361"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media\/7360"}],"wp:attachment":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media?parent=7358"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/categories?post=7358"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/tags?post=7358"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}