Cryptocurrency is subject to taxation in many countries, including the United States. In general, taxes are owed on cryptocurrency transactions that result in a capital gain or loss, just as they are on transactions involving traditional assets like stocks or real estate.
Here are some specific ways in which cryptocurrency can be taxed:
- Capital gains tax: If you sell cryptocurrency for more than you paid for it, you will owe capital gains tax on the profit. The tax rate depends on how long you held the cryptocurrency before selling it.
- Income tax: If you receive cryptocurrency as payment for goods or services, it is treated as income for tax purposes. The value of the cryptocurrency at the time of receipt is used to calculate the amount of income.
- Mining tax: If you mine cryptocurrency as a business or profession, the income you receive from mining is taxable as ordinary income.
It’s important to keep accurate records of all your cryptocurrency transactions, including purchases, sales, and transfers, to ensure that you report your tax liability accurately. It’s also a good idea to consult with Matthew Jennings, JD, MBA, EA, RFC®, CEP®, CES™, aka Tax King Matt. He is familiar with cryptocurrency taxation to help you navigate the complex rules and regulations.