The cryptocurrency business in the United States is developing rapidly. Thousands of people and companies are involved in trading, mining, investing and other operations related to digital assets. But for all the popularity of cryptocurrencies, there is an important aspect that should not be forgotten — taxes.
If you trade on cryptocurrency exchanges in USA or are engaged in mining, you need to understand how the tax authorities evaluate cryptocurrency transactions. Incorrect accounting of income can lead to fines or other problems.
What is cryptocurrency in terms of taxation?
From the point of view of US tax law, cryptocurrency is considered property, not currency. This key difference affects how crypto transactions are taxed. For example, when you sell or exchange cryptocurrency, it is considered as a sale of property, and the resulting profit or loss is subject to taxation.
Here are the main situations when cryptocurrency is taxed:
- Sale of cryptocurrencies. If you sold a cryptocurrency for more than you bought, you are required to pay capital gains tax.
- Exchange of cryptocurrencies for goods or services. Even if you did not receive dollars, but paid with cryptocurrency, the tax authorities consider this as a sale of an asset.
- The exchange of one cryptocurrency for another. Many people mistakenly think that such transactions are not taxed, but this is not the case.
- Receiving cryptocurrencies as income. If you receive payment in cryptocurrency, for example, for work or services, this is considered income that needs to be declared.
Tax liabilities: what is important to know
There are two types of taxes that apply to cryptocurrency transactions:
- Capital Gains Tax. This tax applies if you have made a profit from the sale or exchange of cryptocurrencies. There are two types of capital gains: Short-term capital gains and Long-term capital gains. The tax rate depends on your income and how long you have owned the asset.
- Income Tax. If you received cryptocurrency as income (for example, for work, mining or stacking), it is subject to income tax. The tax is calculated based on the market value of the cryptocurrency at the time of receipt.
How do I keep records of cryptocurrency transactions?
To pay taxes, it is important to keep accurate records of all transactions with cryptocurrency. This is not just a recommendation, but a mandatory requirement. Without accurate documentation, you risk incorrectly filling out the declaration and facing inspections.
What should I write down:
- The date of purchase or receipt of the cryptocurrency.
- The amount and value of the cryptocurrency at the time of purchase.
- Date of sale or exchange.
- The amount and value of the cryptocurrency at the time of sale.
- Any fees or expenses related to transactions.
Cryptocurrency accounting programs can greatly facilitate this process. They automatically record transactions with cryptocurrency exchanges in USA and calculate the tax burden.
Cryptocurrencies open up many opportunities, but do not forget about tax obligations. In the United States, cryptocurrency transactions are closely monitored by tax authorities, and tax evasion can lead to serious consequences.