Cryptocurrency is still the Wild West of the investment world. Not only are these digital currencies completely intangible, but they fluctuate with such volatility that trading and investing in cryptocurrency can feel more like playing a video game than investing in a real asset class.
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But from a tax perspective, the IRS views cryptocurrency transactions the same as if you were buying or selling stocks, bonds or other financial assets. Whether you trade it or simply use it to buy your morning coffee, here are some important tax-related things you need to know about cryptocurrency.
Yes, Cryptocurrency Is Taxable
Let’s cut right to the chase — yes, cryptocurrency can be taxable, depending on what you do with it.
The IRS views cryptocurrency as a capital asset, meaning there are taxes to be paid on any gains. But other actions can also trigger tax on cryptocurrencies, and you should be prepared to declare any such transactions when you file your taxes.
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Cryptocurrency Is Taxed as a Capital Gain If You Sell It
If you buy crypto and then sell it, from a tax perspective, you’ll be taxed the same as if your cryptocurrency was a stock. In other words, you’ll pay short-term capital gains tax if you held the security for one year or less, and you’ll owe long-term capital gains tax if you held your position for longer than one year.
The long-term capital gains tax rate is more favorable for most taxpayers, as it tops out on most transactions at 15%. For single filers with an AGI of $41,675 or less — or $83,350 or less for joint filers — the long-term capital gains rate drops to 0%. Short-term capital gains, on the other hand, are taxed at your ordinary income tax rate.
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You’ll Owe Tax If You Use Cryptocurrency To Purchase Something Else
Planning to use your crypto to purchase things like your daily latte or some new clothes? You’d better plan on…
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