By now you might have heard about cryptocurrency, thanks to the hype created by crypto assets like Bitcoin and if you are reading this there’s a fair chance that you own some crypto assets too. We can evaluate the recent dramatic rise in cryptocurrency fame by estimating that there were approximately 36.5 million crypto users in the USA as of 2021.
Therefore, for many Americans, crypto assets are an alternative option. Users can make purchases, take advantage of promotions, and watch their money increase at any time of the day. The “virtuality” or “decentralization” associated with cryptocurrencies does not, however, imply that they are exempt from the IRS’s regulation, which is an essential point to remember. On the contrary, the IRS never ceases trying to enforce crypto-tax compliance. Let’s try to address the issue of cryptocurrency income tax without further ado. If you operate as a freelancer or independent contractor, your self-employment tax, also known as SECA tax, and your typical 1099 tax are very different from this type of tax. And you can use an estimated tax calculator and a self-employment tax calculator to better estimate your tax payments.
US taxes and cryptocurrencies
When determining federal income taxes, the IRS does not consider any cryptocurrency profits as fiat money; rather, it treats them as a type of property. Therefore, capital gains and federal income tax may be relevant to cryptocurrency transactions based on the type of transaction made. Additionally, all cryptocurrency trades are subject to the tax principles outlined in IRS Publication 544, Sales and Other Disposition of Assets. Because of this, whenever a US citizen buys, sells, or trades cryptocurrencies, they should carefully compute their tax obligations to determine whether they owe any money.
To the extent that capital losses can be offset by profits, anyone who sells virtual currency is required to reveal the gain or loss. The gain or loss will be determined by the discrepancy between their adjusted basis in the virtual currency and the amount they are paid in return for it. The sum that needs to be disclosed when submitting a US dollar income tax return is the adjusted amount. Now let’s examine how the IRS views different crypto assets revenue sources:
- When cryptocurrency payments are made as wages, the IRS considers them as salaries.
- Crypto mining is viewed as an extra revenue stream.
- Staking and liquidity pools are used to make dividends.
- Friend Bonus: regarded as a type of contract
- Forks are seen as a type of present whenever new money is acquired.
Not to mention, the government income tax rate applies to cryptocurrency earnings at the same rate. As a result, the crypto tax a person must pay might vary from 10% to 37%.
Thus, a brief summary of “how much is cryptocurrency taxed” is provided.
Last but not least, it is important to bear in mind that cryptocurrency is a relatively new phenomenon, and many people overlook its complexities. As a result, consulting a certified public accountant (CPA) or using a crypto assets tax calculator is the best option.
The last one has a number of benefits, including full accuracy, efficiency, and cost. Today, users can predict their crypto taxes using a variety of reliable AI-powered crypto tax calculators from the comfort of their homes. One such tool is FlyFin A.I., it uses the most sophisticated machine learning algorithms to automatically discover deductions from your bank account. To take care of your tax requirements, you also have a dedicated CPA support team and a wealth of tax resources. Additionally, you can learn about significant subjects like Form 1040, 1099 tax, and avoiding tax penalties. You can also use a mileage calculator 2022 to find your business mileage deductions.
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