How Bitcoins are taxed: Crypto investors must know
It’s not surprising that more and more people are flocking to cryptocurrency investing given how quickly cryptocurrency and blockchain technologies have grabbed the world by storm.
Everyone who invests in cryptocurrencies does so for their own reasons, whether they want to do it quickly and carefully or gradually over time. One of the easiest ways to learn crypto trading is through opting for courses on the same provided by many globally recognized colleges and universities.
Since it is also a form of investment and gaining profits, cryptocurrency can be taxed as well.
But before understanding how it is taxed, we must understand the trend behind investing in cryptocurrencies.
Why invest in cryptocurrencies?
A little more than ten years have passed since Bitcoin, the first cryptocurrency, went live. And yet, in the fast-paced world of cryptocurrency trading, thousands of technological developments, inventions, and changes have already taken place.
Speculating on the price in the belief that the asset will increase in value in the future is likely the most popular reason for investing in cryptocurrencies.
Bitcoin and ether, the native cryptocurrency of the Ethereum blockchain, among many others, have seen their value soar dramatically during the previous ten years.
Cryptocurrencies’ decentralized nature has irrevocably altered traditional financial institutions, enabling international trade at competitive rates with quick transaction times.
Making wise speculative investments is, therefore, a way to invest your money in the future you want to see if you have faith in the crypto sector.
How is Bitcoin: a Cryptocurrency taxed?
Investors may have numerous questions about how crypto taxation works, including how much tax to pay on Bitcoin and the tax rate, due to the complexity of crypto tax legislation and laws.
Like the USD, GBP, and AED, Bitcoin, like all other cryptocurrencies, is not accepted as a fiat currency by nearly all nations around the globe. Cryptocurrency is considered an asset for tax purposes and is taxed the same as any other asset, much like real estate, stocks, or shares.
Since Bitcoin is considered an asset for tax purposes, if an asset is liquidated and sold, the owner is required to pay capital gains tax.
If you exchange, sell, or lose ownership of your Bitcoin, four things could occur:
- Any gain results in income.
- The difference in dollar value between the cost basis or purchase price and the gross proceeds from the disposition or the selling price is used to calculate gain.
- Whether the asset was held for more than a year (long-term gain) or less than a year (short-term gain), determines the tax rate that will apply (a long-term gain).
- Property sales are reported on Schedule D and either Form 8949 or Form 4797 on your tax return. When estimating a gain or loss, you must “present your math” according to these forms. You’ll complete your calculations exactly as instructed on the form.
Transactions involving cryptocurrencies need to be disclosed on your tax return.
Even if you obtained any free virtual money, such as from an airdrop or hard fork, you must tick the relevant box next to the question on virtual currency if you conduct any cryptocurrency-related transactions.
If you only conducted transactions between wallets that you own, do not worry about registering for taxes. You can learn more about taxation on cryptocurrencies by doing a course on the same.
So what are you waiting for? Learn trading today!