There are a number of events in your life that can lead to taxation. It is important to understand the tax implications of these events so that you can organize your finances and minimize tax risks. The United States has tax rules for both investors and individuals. General taxable events include when you receive income taxable salaries, when you realize capital gains (that is, sell an investment for a profit) or receive investment dividends. For cryptocurrency enthusiasts, taxable events occur when one type of cryptocurrency is exchanged for cash or another cryptocurrency. Before making any financial decision, seek financial advice from an independent professional tax advisor.
Daily taxable events
During tax planning, it is important to consider the timing of various taxable events that may give rise to different tax liabilities. There are a number of day-to-day events that have tax implications. For example, salaries, dividends and profits earned are classified as fixed taxable events. The sale of investments or rebates is classified as variable taxable events. When it comes to variable taxable events, it is important to pay due attention to their timing as this can significantly reduce your tax liability.
Taxable events in cryptocurrency
In the US, cryptocurrency is considered property. As a result, all cryptocurrency transactions and transactions are subject to taxation. This approach took people by surprise as, prior to the clarifications of the IRS, the market believed that cryptocurrency could be classified as a currency. As a result, in the US, exchanging one cryptocurrency for another is equivalent to selling one asset and buying another. Therefore, capital gains (or losses) must be recorded and reported to your taxes. The base value for that particular purchased cryptocurrency is strictly calculated based on its fiat value at the time of the trade. It is important to note, however, that converting fiat to cryptocurrency (i.e. buying cryptocurrency) is tax-free. Selling your cryptocurrency is what generates tax liabilities.
Taxable events from receiving cryptocurrency
There are several ways to earn cryptocurrency. For example, holders of cryptocurrency can earn cryptocurrency on anything from mining to salaries for services. The taxes on earned cryptocurrencies are similar to taxes on earned income, but not in all cases. Taxes from accepting cryptocurrency as payment for goods or services.
Some people incur taxable events when receiving cryptocurrencies in exchange for goods or services provided. This happens when you accept payment in cryptocurrency for goods or services rendered. The number of people accepting wages in cryptocurrency is growing. For these people, all you have to do is simply calculate your salary at the time of payment to determine your tax category. That being said, you shouldn't forget that cryptocurrency is technically a property (asset), not a currency. Any increase or decrease in the value of your cryptocurrency will have tax consequences.
Mining income taxes
Cryptocurrency miners are taxed based on their earnings. The amount of tax, tax category and other changing aspects entirely depend on how much their activity brings in a given tax period. Taxation then comes down to whether you mine enough to qualify as a business, or whether your mining is a hobby or a bustle. Miners are advised to seek professional tax assistance before making any financial decisions, as their unique position in the tax system will require individual advice. Cryptocurrency taxes from airdrops or hard forks Receiving "free" money in the form of Airdrops or hard forks can have any tax consequences. The question remains as to whether the receipt of tokens in this way should be considered income for tax purposes. If, at some point in the future, airdrops and hard forks are treated as taxable income, then the fair market value (FMV) will be retained to determine your income during the airdrop or hard fork. Alternatively, the more likely scenario is that these tokens will be received as an underlying asset with zero value, and then you will need to pay off the capital gains from the profit generated at the point of sale. In any case, you will have to track these token sales from a tax point of view. We recommend that you seek individual professional tax advice according to your situation before making any financial decisions. How to calculate taxable events from your cryptocurrency One of the most difficult parts when claiming your cryptocurrency for taxes is accurately summarizing all your transactions and calculating tax events. myCryptoTaxCalculator is a simple and easy to use tool that helps you keep track of your taxable transactions and calculate total capital gains over tax time.