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In 2017, Internal Revenue Service asked cryptocurrency exchange Coinbase to reveal every crypto transaction of its 14,000 users. The authorities called for data about trading BTC worth $20,000 during 2013-2015. Eventually, the federal board became stringent for reporting gaps in buying and selling of crypto. Since then, taxing has become a prominent topic for all crypto holders. CBDT also made similar statements on crypto and taxing.
What are crypto taxes?
All these digital currencies like Bitcoin, Ethereum, and more are now taxable as they are ratable “properties” in the eyes of the IRS. Hence, like any other asset, one has to incorporate taxing rules while dealing in these tech finances. The taxes levied on all such digital currencies are termed crypto taxes. It does not matter how small, but every coin held is subjected to tax being an asset of the owner.
Why should you pay them?
A lot of confusion is going around why they should pay crypto taxes. The reasons are simple as follows.
- Property Nature- The foremost reason is that central authorities have announced that crypto is an asset held as property. So, any trader has to pay taxes just like land or any other possession in the balance sheet.
- Legal Aspect- Due to many scams, money laundering, and other theft events, the need for legal accountability rose. Therefore, some laws came on the record, and every crypto holder must abide by them to avoid legal penalties.
- Cover Losses- Similar to bonds or stocks, it may be possible to deduct the crypto numbers as capital losses. But for that, one must have to be transparent while revealing crypto holding and trading.
When you’ll owe taxes on cryptocurrency
Bitcoin, Ethereum, and all cryptos are treated like other assets only. Hence, it is vital to know when it will be taxed under what column.
Holdings for 36 months or more will be deemed long-term capital gains, and the liability to pay taxes will be created accordingly.
Anything less than 36 months is short-term capital gain and is taxable under the STCG head.
However, if the owner is trading crypto regularly, it will move to the title of profits and gains from business or profession and invite taxes in this frame.
Penalties for not disclosing cryptocurrency income
Though there are distinctive thoughts about its currency identity, officials made clear that it is similar to gold, stocks, and other wealth. So, those who fail to report crypto income will attract legal penalties and other unwelcoming consequences like:
– Official Audit
– Interest Cost
– Monetary Fine
– Criminal Prosecution
The extent may vary from region to region, but punishments or penalties are sure.
Can you reinvest crypto and avoid taxes?
Many people prefer to reinvest crypto. It is a personal choice and risk based on market readings and own capacity. Plowing the gained profit back in trading or buying crypto miners are the usual modes. Alternatively, you can stake your crypto and become a validator on ETH2 network. You can check more about this on Ethscan.
Taxes can be avoided by holding STCG till they turn into LTGC. However, it is best to stay crystal clear for its accountability to avoid unintended outcomes.
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