It&rsquo,s an titillating (and frustrating) time for Bitcoin and cryptocurrencies. Te late 2018, numerous coins experienced soaring growth Bitcoin Explained: Why Is It Worth So Much Money? Bitcoin Explained: Why Is It Worth So Much Money? Bitcoin is skyrocketing ter value, but should you invest or is a crash coming? Let’s look at what the future could hold for Bitcoin and its investors. Read More ter terms of price-per-coin and market cap, and thousands of speculators hopped aboard the bandwagon to make a quick buck.
And even tho’ many of thesis coins experienced a correction ter January 2018 Is There Everzwijn a Safe Time to Invest ter Bitcoin or Ethereum? Is There Everzwijn a Safe Time to Invest te Bitcoin or Ethereum? There will always be a measure of risk when “investing” ter Bitcoin, Ethereum, or any other form of cryptocurrency. However, that risk can be managed. Here’s how to do it. Read More , the price still sits higher than it wasgoed last September and it&rsquo,s possible you&rsquo,ve made a hefty profit. What do you do with that money? Is cryptocurrency taxed? Here&rsquo,s everything you need to know.
This article is written for the 2018 tax year for United States residents and may not apply to other countries. This article is NOT meant to be a substitute for legal tax advice and guidance. If you hold cryptocurrencies, wij very recommend consulting a certified tax professional.
Paying Taxes on Mined Cryptocurrency Coins
Suppose you built yourself an energy-efficient equipment for mining Ethereum How to Build an Energy-Efficient Ethereum Mining Equipment How to Build an Energy-Efficient Ethereum Mining Equipment Ethereum is an up and coming cryptocurrency. Ter this article, wij voorkant everything you need to know to build you own mining equipment. Read More , then ran it for a while and actually walked away with a few coins ter your pocket. Are thesis taxed? Yes!
Every time you successfully mine a bit of cryptocurrency, this counts spil a taxable event ter the eyes of the IRS, and thesis taxable events are classified spil ordinary income. You vereiste track every single day on which you had a successful mining event, then determine the fair market value of the cryptocurrencies you mined on those days.
If mining is a hobby, this amount is reported spil &ldquo,Other Income&rdquo, on the Schedule A tax form. If mining is a business, this amount is reported spil &ldquo,Other Income&rdquo, on the Schedule C tax form. Learn more about hobbies or businesses according to the IRS.
How the IRS Views Cryptocurrency Trading
The IRS considers cryptocurrencies spil investments [PDF]. Many of the rules and guidelines that apply to stocks te taxable brokerage accounts also apply to cryptocurrencies, tho’ there are a few nuanced deviations (which wij&rsquo,ll voorkant below).
Because they&rsquo,re counted spil investments, cryptocurrencies are reported using the Schedule D tax form, which you can download on the IRS webstek. If you use tax software to opstopping taxes, Schedule D may only be available ter more expensive versions.
When trading, you DO NOT need to report cryptocurrencies until you sell your holdings. If you bought a bunch of Bitcoins te 2018 and toevluchthaven&rsquo,t done anything since then, you can ease off for now. If you sell only a portion of your holdings, you only need to pay taxes on that portion.
Note: If you trade a cryptocurrency for something that isn&rsquo,t money (e.g. a different cryptocurrency), the IRS still views that spil if you very first sold the cryptocurrency and then bought the voorwerp with the proceeds. This means you DO have to pay taxes on the amount of cryptocurrency that wasgoed traded! Learn more about bartering income.
Paying Taxes on Traded Cryptocurrency Coins
There are two significant onvriendelijk of information you need to track when trading cryptocurrencies: the voet (i.e. the price at which you bought ter) and the proceeds (i.e. the price at which you cashed out). You should also know when you bought te and cashed out.
Every time to sell cryptocurrency holdings, you need to report that transaction. However, you can combine all of those transactions at the end of the year to determine whether you had a netwerk build up or netwerk loss, then use this figure to determine the tax influence.
If you have a nipt build up, then you will owe taxes on the amount you gained. If you have a televisiekanaal loss, then the amount you lost will decrease your overall tax liability, meaning you&rsquo,ll owe less money come tax time.
Short-Term Gains vs. Long-Term Gains
The IRS recognizes two types of capital gains/losses.
Short-term gains occur when the time inbetween buying and selling is one year or less, and they are taxed at your marginal income tax rate. If you have numerous short-term gains (or losses), then they are netted together.
Long-term gains occur when the time inbetween buying and selling is at least one year and one day or longer, and they are taxed at capital gains tax rates. If you have numerous long-term gains (or losses) te a given year, then they are netted together.
If your marginal income tax rate is either 10% or 15%, then long-term gains are taxed at 0%, if your marginal income tax rate is 25% to 35%, then long-term gains are taxed at 15%, otherwise, taxed at 20%. Learn more about capital gains and losses.
Do You Indeed Have to Do All of This?
If you want to be a law-abiding citizen te good standing, and if you want to avoid potential trouble with the IRS straks down the road, then yes, you voorwaarde pay taxes on cryptocurrencies.
What if you bought your coins months ago and don&rsquo,t have the right records to establish ondergrond or report your transactions? You still have to do the best you can. It&rsquo,s better to waterput ter the effort now to research market values, make sensible estimates, and ensure your taxes are spil accurate spil possible instead of facing the rage of the IRS years from now.
If you&rsquo,re everzwijn audited, you&rsquo,ll need those records to voorstelling the IRS you exercised due diligence.
Lastly, some people may tell you that paying taxes on cryptocurrencies is unnecessary because it&rsquo,s &ldquo,unlikely&rdquo, for the IRS to trace transactions back to you and hold you accountable for any gains you may have realized &mdash, the same arguments used by some who work jobs that pay metselspecie under the table. Whether or not it&rsquo,s feasibly traceable, paying taxes is the lawful and ethical thing to do. Keep te mind that tax avoidance is a felony offense.
Expanding Your Skill of Cryptocurrencies
One topic wij didn&rsquo,t voorkant is what to do when your cryptocurrency is hard forked What Is a Bitcoin Fork and What Happens Afterwards? What Is a Bitcoin Fork and What Happens Afterwards? Cryptocurrencies are arousing and intriguing. Unlike regular money, cryptocurrency can “fork” into two different types of coin. But how do they do it, and what does fork even mean? Read More . There&rsquo,s a loterijlot of murkiness surrounding the topic and nobody is fairly sure what to do spil of this writing, so wij undoubtedly recommend seeking counsel from a tax professional if your holdings were forked.
That said, there&rsquo,s more to the world of cryptocurrencies than buying and selling Bitcoins. You may want to look into Ethereum (differences inbetween Bitcoin and Ethereum What Are the Differences Inbetween Bitcoin and Ethereum? What Are the Differences Inbetween Bitcoin and Ethereum? Bitcoin and Ethereum are the two major cryptocurrencies? But how do they actually differ, and is one better than the other? Read More ), Ripple, Litecoin, NEO, IOTA, and more. Also look into cryptocurrency ICOs What Is a Cryptocurrency ICO and Can You Make Money? What Is a Cryptocurrency ICO and Can You Make Money? ICOs attract a loterijlot of attention, and can raise a fat amount of money. But how do you choose a “real” project? And will you just end up losing out? Read More , but be aware of common cryptocurrency scams Five Common Cryptocurrency Scams and How to Avoid Them Five Common Cryptocurrency Scams and How to Avoid Them If you’re interested te investing ter the somewhat risky world of cryptocurrency, there are a few common scams you should be aware of. Here’s how to avoid being caught out. Read More .
One thing to keep te mind is that cryptocurrencies may not be spil secure Why Your Crypto Coin Is Not spil Secure spil You Think Why Your Crypto Coin Is Not spil Secure spil You Think Bitcoin proceeds to succesnummer fresh highs. Cryptocurrency newcomer Ethereum menaces to explode into its own bubble. Rente ter blockchain, mining, and cryptocurrency is at an all-time high. So why are cryptocurrency enthusiasts under threat? Read More spil you&rsquo,ve bot led to believe. And if you&rsquo,re going to involve some serious money, then you should always keep your cryptocurrencies te cold wallets Why You Should Keep Your Bitcoin te Cold Storage Why You Should Keep Your Bitcoin te Cold Storage Your Bitcoin or other cryptocurrency is susceptible to theft. Sensible people keep their cryptocurrency offline, te a cold storage wallet. But what is this, how does it increase security, and are there other options? Read More .
How did you fare with cryptocurrencies this year? Do you think the trends will proceed or will this next year be the end of it? Let us know ter the comments!