If you are a recent or first-time cryptocurrency investor, you must take the time to research the various ways in which it can impact both tax and commission. It can sound like an insurmountable task jam-packed with industry jargon and lingo, especially if you are an inexperienced cryptocurrency investor, but by familiarising yourself with a number of helpful tips, tricks, and snippets of information ahead of time, you can proceed with a clearer underlying knowledge and understanding of cryptocurrency and, perhaps most importantly, prevent yourself from making a decision that may come back to haunt you down the line. To find out what you should know when it comes to cryptocurrency tax and commission, continue reading.
It must be included in your annual tax filings
If cryptocurrency played a minor or major role in your taxes during the past year, it must be included in your annual tax filings for the year. It may, therefore, benefit you to start gathering and planning your entire history of cryptocurrency transactions from the past year a number of months in advance or as you proceed throughout the year to streamline the process of compiling your tax filings when the time comes. It may seem unnecessary or feel like you are jumping the gun but by ensuring you are as prepared as you possibly can be ahead of time, you can protect yourself from a number of common mistakes and prevent any stress-related meltdowns from occurring down the line. If your tax situation is relatively simple and straightforward or you have only dabbled in cryptocurrency throughout the past year, you may be able to report your cryptocurrency earnings quickly and easily by relying on tax software. It may also be possible to rely on the expert services of an external cryptocurrency-specific software program to simplify the entire process from start to finish both this year and during any future tax filings.
It may require a cryptocurrency primer
If you have only recently launched your cryptocurrency investment or trading journey, it may benefit you to define cryptocurrency in terms that you are familiar with before contending with tax or commission. It is, after all, standard practice for cryptocurrencies to be referred to as coins despite the fact that they are not necessarily used in the same way as physical coins. It is also standard practice to be stored in digital wallets, exchanges, or brokerages. This has led to it becoming a popular choice for consumers buying and selling goods and services over the internet, expanding upon their existing investment portfolios, and exchanging funds with like-minded individuals. It is, however, also entirely possible to trade bitcoin without commission with a number of exchanges and brokerages cropping up promising no additional or hidden fees. It may still be in its infancy but by ensuring you know everything there is to know about the latest digital trend to take the world by storm and refraining from investing in digital tokens that you are unfamiliar with; you can be confident in your ability to not only safely and securely invest in cryptocurrency but become an experienced cryptocurrency investor down the line.
It can lead to problems down the line
If you have been buying, selling, or investing in the past but failing to pay taxes on any of your gains, you may not be alone. In the past couple of years, for example, a growing number of cryptocurrency investors have reported ongoing problems by failing to remain compliant with emerging rules and regulations when it comes to how cryptocurrency is managed on a wider scale. This is especially important considering the IRS’s decision in 2014 to consider cryptocurrency as property and, therefore, require that taxpayers report transactions involving cryptocurrency as US dollars on their tax returns for the year. It, in the very simplest of terms, means that its fair market value must be determined at the time of the transaction. This can be done by converting the virtual currency into US dollars or any other relevant currency that can be converted into US dollars if the currency’s exchange rate is established by market supply and demand.
It can be viewed as capital assets
If you sell stocks in exchange for a profit, it can be viewed as capital assets. It may also, however, benefit you to know that cryptocurrency operates in a similar way with capital gains taxes required to be paid on any transactions regardless of whether they may have been held on a short-term or long-term basis. They are also calculated in a similar way by taking the initial monetary cost of the and calculating how much it has risen or fallen in the time since in relation to your taxable income.
If you are a recent or first-time cryptocurrency investor, you must find out everything there is to know about tax and commission sooner rather than later. It must, for example, be included in your annual tax filings, may require a primer, can lead to problems down the line, and can be viewed as capital assets.