Do I have to pay taxes on my cryptocurrency?
I have recently seen a few posts on social media where people are surprised that the government asks if you own any cryptocurrency as a question when filing their taxes. They show the 1040 tax form, where, right on the front page, it asks, “At any time during 2021, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” They are shocked and wonder how the government can ask this when crypto is supposed to be anonymous and decentralized. I hate to break it to you, but yes, you have to pay taxes on cryptocurrency gains.
The government always has its hand out when it comes to our money. So, of course, they found a way to tax cryptocurrency. The government does not recognize crypto as money. They view it as property and tax it accordingly. Anonymous or decentralized, it makes no difference to them. They want their cut, and you don’t want to find out the hard way what happens if they don’t get their share. I am not a CPA, and this is not financial advice. But let’s get educated on some basics of crypto taxes.
If you incurred a taxable event on your cryptocurrency then you must report it to the IRS. What is a taxable event? If you only purchased some cryptocurrency but never sold or traded it, then that is not a taxable event. It is common to buy and hold, or HODL, your cryptocurrency. If that’s all you did last year, then you are good. Or, if you merely transferred some of your crypto from one wallet to another one of your wallets, then you shouldn’t have anything to report. For example, I bought some ETH on Coinbase and then transferred some of it to my MetaMask wallet. That is not a taxable event.
A taxable event happens when you realize gains or losses.
Taxable Events Include:
• Selling cryptocurrency for US dollars or other fiat currency
• Trading one cryptocurrency for another cryptocurrency
• Purchasing goods or services with cryptocurrency
*Being paid in crypto
*Acquiring crypto through mining
*Receiving crypto by airdrop or reward
If you plan on getting into crypto, it is essential to keep records of all your crypto transactions. This way, when tax time comes around, you will be prepared. If you use an exchange like Coinbase, they will generate a report that you can download with all your transactions. In addition, there is crypto tax software available that makes it easier to file your crypto taxes.
The best thing to do is to continue to educate yourself on cryptocurrency taxes. As time goes on, I'm sure the government will change the tax laws on cryptocurrency. Youtube and Google are great resources for finding experts who can keep you up to date on all the ins and outs of it all. And please, always contact a reputable and knowledgeable CPA to help you when it comes time to file your taxes.
A way to not pay taxes on crypto gains!
There is one way to buy crypto and not pay taxes on the gains. And yes, it’s legal. Want to know? Open a crypto Roth IRA. A Roth IRA is a type of retirement account. The contributions you make to a Roth IRA are made with money that you already paid taxes on. Your earnings in the account grow tax-free. And when you are 59 ½, and you can begin to take distributions, you withdraw the money tax-free. The one company that I have been looking into for myself is iTrustCapital.com. I am not affiliated with them at all. I just want everyone to know about this available option. Again, this is not financial advice, so thoroughly do your research before making any investment, but it can be a great way to invest in cryptocurrency.
I hope this helps you feel more comfortable when it comes to cryptocurrency taxes.