Like many things that we utilize, cryptocurrency comes at a price. It comes in the form of taxes. But the reality is that not many people are aware that Bitcoin has taxes at all.
Some of them could care less. But what are these taxes at all? Will they affect an individual’s crypto transactions? What happens if you do not pay for them? You might want to stick around to find out.
Let’s kick things off with some fundamentals. For those who do not know, cryptocurrency is a form of finance that does not involve physical assets. It is a digital currency that individuals use for various transactions and other purposes.
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Anyone who has digital currency can exchange it for goods, services, and other things. The entire concept works thanks to a technology called Blockchain.
Perhaps the most popular digital currency right now is Bitcoin. It is now a worldwide payment system that does not require physical bills and coins. More and more individuals are turning to Bitcoin and other currencies nowadays thanks to several reasons. Here are some of them:
- Digital currency is unaffected by inflation
- More than one individual or administrator operates and manages cryptocurrency systems
- There is no need to carry physical money at all
- Digital currency can transcend borders, unlike actual money
- Security and privacy
It goes to show that the cryptocurrency train shows no signs of slowing down any time soon. Not only that but also expect to have more and more companies making their digital currencies. Such hype can lead to actual physical money going obsolete.
While it is getting a whole lot more popular, people think that Bitcoin and other digital currencies have taxing issues. Bitcoin has no traditional financial institution handling or managing its transactions.
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Instead, a powerful encryption system operates to keep things working smoothly. But the thing is that exchange now includes Bitcoin along with well-recognized currencies, such as Euro and Dollar.
More and more organizations and companies see the importance and impact Bitcoin has in the worldwide market. That is why they are now implementing a tax on Bitcoin and other digital currency transactions.
The following Bitcoin Transactions are Taxable:
Mined Bitcoin selling
Let us say you mine Bitcoin for kicks. You will have to pay capital gains taxes if you plan to sell it to a third party.
You will also have to pay taxes if you want to cash out on your Bitcoin or any digital currency you might have.
If you want to swap your Bitcoin with another currency, you will have to pay for the tax that goes with the transaction.
Anything you purchase with Bitcoin, such as services or wares, also now comes with an additional tax.
However, you do not have to worry one bit. The neat thing is that not all Bitcoin-related transactions are taxable. There are exceptions as well. Here are some of them:
- Gifting Bitcoin or other forms of cryptocurrency as a gift
- Buying Bitcoin using fiat money
- Donating cryptocurrency to a non-profit organization or charity
- Transferring your digital currency from one wallet to another
- And so much more
In addition, there exist several considerations regarding the Bitcoin tax. It is clear no matter what that taxing cryptocurrency and reporting it is quite a complex process. One thing that makes it so is that the overall value of Digital currencies is challenging to get a hold of entirely.
You cannot make a safe bet with such a market that has volatility. Not only that, but you will also have to find a suitable accounting method that will process the cryptocurrency taxing process.
There is decent news regarding the taxing process. Several organizations and companies are now working on crypto tax software. Such technology assists and makes life easier for anyone who wishes to compute Bitcoin taxes. On top of that, the service is available online.
You will not find any shortage of sites that deal with such services. Most of them are usually free. But you might have to pay for others, especially if they have additional features.
So to conclude things, our answer is a yes. Bitcoin is now a recognized asset. That makes it taxable. You will still need to settle taxes as you use Bitcoin and other forms of digital currency.
How much you will have to pay depends on the transaction you want to deal with entirely. But not all Bitcoin services require additional payment. Some of them will not cost you any cash at all.
In addition, it is a must that you as a taxpayer must record all your Bitcoin transactions for reporting later. Take note of all the selling, trading, investing, and usage you have with Bitcoin and other cryptocurrencies.
Failure to do so has a set of ramifications you might not want to deal with no matter what. It is better to be safe than sorry later.
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