Tax Rules for Buying and Selling Bitcoin and Other Crypto

Author Elnora Fratini

Posted Mar 23, 2023

Reads 4.5K

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Tax rules are a critical determination when it comes to buying and selling Bitcoin and other cryptocurrencies. With the rise in popularity of crypto-trading, it is essential to understand the tax implications that come with it. The IRS revenue ruling 2014-21 made a critical determination that for federal tax purposes, cryptocurrencies are considered property, not currency. This ruling meant that tax purposes treating crypto profits is similar to stock-trading profits.

While crypto taxation may seem daunting at first, it is relatively straight forward once you have the necessary information. Buying Bitcoin can happen through various channels like Bitcoin ATMs or exchanges, and the outcomes are treated similarly when it comes to capital-gains taxes. Understanding how cryptocurrency taxes work and related seven things can help minimize your tax liability while maximizing your long-term gains. In this article, we will dive into everything you need to know about tax rules for buying and selling Bitcoin and other cryptos.

Trading of crypto and short-term vs. long-term gains

Trading of crypto has become increasingly popular, with many people adding it to their stock portfolio. If you bought Bitcoin or any other cryptocurrency and sold it for a profit, you will need to pay taxes on your gains. The tax rules are different for short-term and long-term capital-gains rates depending on how long you held the assets.

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Preferred long-term capital-gains rates apply to those who have held their investments for at least a year. Middle-income earners generally pay lower long-term capital-gains tax rates than high-income earners. Married couples also have higher income thresholds before entering the next tax bracket, allowing them to take advantage of these preferred rates. Short-term capital-gains rates are based on modified adjusted gross income and are typically higher than long-term capital-gains rates. Understanding these tax rules can help you make informed decisions when trading crypto and managing your finances overall.

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Crypto mining and staking is ordinary income taxed at regular rates

For tax purposes, cryptocurrency mining and staking income are considered ordinary income and taxed at regular income-tax rates. Cryptocurrency mining involves using computers to solve complex mathematical equations that verify transactions on the cryptocurrency blockchain network. In return, the computers typically receive cryptocurrency, which is considered taxable income.

Similarly, staking involves owning computers that provide support for a cryptocurrency blockchain network. As a staking counterpart, these owned computers are provided cryptocurrency as a reward. They typically receive crypto as an incentive to keep the network secure and perform other functions. However, this cryptocurrency is also considered taxable income for tax-reporting purposes. It means that if your crypto increases in value after receiving it from crypto-mining services or staking, you may have to pay capital-gains tax on any profits made. So if you're involved in cryptocurrency mining or staking activities, make sure to report your earnings as ordinary income and pay the corresponding taxes at regular-income tax rates.

Gain Tax-Free Crypto Profits by Leveraging your IRA

Are you an early adopter of cryptocurrency who has enjoyed dramatic gains over the years? If so, you may be concerned about significant tax bills when it comes time to cash out. Fortunately, there is a tax-efficient option available: the Roth IRA. By trading crypto within a self-directed Roth IRA, you can grow your gains tax-deferred for the long haul.

When you reach retirement age, you can withdraw your investment gains without paying capital-gains taxes. Unlike traditional IRAs, HSAs or solo 401(k)s, Roth IRAs do not require annual tax reporting and offer greater flexibility from year-to-year. Plus, with a Roth IRA, the account owner takes distributions tax-free and without any early withdrawal penalties on investment gains withdrawn.

While usual broker-dealers may not provide retirement accounts that allow you to trade cryptocurrency, some retirement account custodians in the self-directed IRA industry offer what are called "self-directed" accounts. These accounts enable investors to invest their funds into real estate private companies and even cryptocurrencies like Bitcoin or Ethereum with relative ease. A crypto Roth IRA watch is a great way to keep track of your investments while significant trading fees make it difficult for many investors to trade cryptocurrency on their own. With the help of a management team or services selected by their CEO attorney, directed trust company or other professional firms; investors get the benefits of investing in cryptocurrencies without having to worry about taxes and other legal issues that come along with them.

Discover the Simple Way to Swap Your Cryptocurrency

Swapping your cryptocurrency can be a quick and easy way to diversify your portfolio or take advantage of market opportunities. However, it's important to understand the potential tax implications of such transactions. Any gains you make from swapping one type of cryptocurrency for another may be considered a taxable event and subject to capital gains tax. To minimize your taxable gain, consider holding onto your new cryptocurrency for at least a year before selling it or exchanging it for another asset.

These Are the Most and Least Affordable Places to Retire in The U.S.

Most of us dream of retirement, but as we age, the need for a good quality of life increases. Thus, it is necessary to be aware of the most and least affordable places to retire in the U.S. As per Madeline Garfinkle from Forbes Magazine, the West Coast tends to be one of the most expensive regions due to high taxes and living costs.

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On the other hand, states located in the Mountain State region tend to be more affordable options for retirees. These areas have lower housing and healthcare costs while still offering scenic views and outdoor activities. By being aware of tax rules in these regions, retirees can make informed decisions about where they want to spend their golden years.

Why You Need to Focus on Record Keeping in Your Business

If you're a crypto owner, buying, selling or trading cryptocurrencies requires diligent record keeping. Properly reporting your cryptocurrency gains is critical for tax purposes. The IRS requires traders to properly track and report crypto transactions using Form 8949 and Form 1040. This includes all major providers such as Coinbase, Gemini, Kraken, Cash App and PayPal. Failing to comply with this reporting obligation can lead to penalties and additional foreign asset reporting requirements.

Many cryptocurrency investors and users are unaware of their tax-reporting obligations. However, pending rule changes may soon include crypto holdings in foreign financial assets that require reporting under Form 8938. Even holding crypto abroad can trigger foreign bank account reporting under Foreign Bank Account Rules. To avoid taxation and penalties, it's essential to keep accurate records of all related cryptocurrency transactions.

Good record keeping isn't just a matter of compliance; it's also an important business practice. Ten companies that excel at record keeping are more likely to succeed than those that don't take the time to track their finances properly. With numerous cryptocurrency-tracking applications available today, there's no excuse not to keep up with your tax obligations. By taking the time now to ensure you're properly recording your crypto assets, you'll avoid potential legal issues down the road and set yourself up for long-term success in the industry.

Discovering the IRS Tax Rate for Employee Bonuses

Cases bonuses are an excellent way to reward your employees and encourage high-performance. However, it's essential to understand the tax implications that come along with these bonuses. The IRS requires employers to treat bonuses differently from regular wages for tax withholding purposes.

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Bonuses are considered supplemental wages, which simply means they're subject to income taxes and FICA taxes in different ways. For tax withholding purposes, there are two ways of meaning they'll be taxed: the flat withholding rate or the aggregate method. Your employer will take a portion of your bonus upfront as tax withholding, but that doesn't necessarily mean that's the effective tax rate you'll ultimately pay.

The effective tax rate on your bonus is determined by your total income and other factors like deductions and exemptions. Employers aren't required to use a specific formula for calculating taxes on bonuses. As such, it's important to plan ahead and understand how your bonus will impact your taxes overall. By understanding how bonuses are taxed, you can avoid surprises come tax time!

The Collapse of Credit Suisse: A Cautionary Tale of Resistance to Hybrid Work

The collapse of Credit Suisse serves as a cautionary tale for business leaders who resist the changing world of hybrid work. According to Gleb Tsipursky, CEO of disaster avoidance experts Disaster Avoidance Experts, companies that refuse to adapt risk losing everything in the long run.

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As more and more companies move towards hybrid work arrangements, it's essential for business leaders to embrace change and implement new strategies that can help them thrive in this new environment. Tsipursky warns that those who fail to do so may face dire consequences, as seen in the case of Credit Suisse. The collapse of this once-great institution reminds us all that resistance to change is futile in today's fast-paced and rapidly evolving business landscape.

Frequently Asked Questions

Is bitcoin taxable?

Yes, bitcoin is taxable. In most countries, including the United States, bitcoin and other cryptocurrencies are treated as property for tax purposes and are subject to capital gains tax when sold or exchanged. It is important to keep accurate records of all cryptocurrency transactions for tax reporting purposes.

Are bonuses taxed differently than commissions?

Bonuses and commissions are taxed the same way, as they are both considered taxable income. However, there may be differences in how they are withheld for taxes depending on your employer's payroll system.

Are bonuses taxed higher than wages?

Yes, bonuses are taxed differently than regular wages and may be subject to a higher tax rate. Additionally, they may also be subject to additional taxes such as Social Security and Medicare.

Do you have to sell your bitcoin before buying it?

No, you don't have to sell your bitcoin before buying more. You can simply add to your existing holdings or make a new purchase without selling anything first.

Is cryptocurrency taxed?

Yes, cryptocurrency is taxed. In most countries, including the US, it is treated as property for tax purposes and subject to capital gains tax when sold or exchanged. It is important to keep track of all cryptocurrency transactions and report them accurately on your tax return.

Elnora Fratini

Elnora Fratini

Writer at Inside Business

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Elnora Fratini is a writer who has a passion for exploring new ideas and sharing them with others. She is deeply committed to personal growth and self-improvement, and her writing reflects this focus. Elnora's work ranges from thoughtful essays on social issues to practical advice on health and wellness.

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