Yes, there are some amazing ways that using cryptocurrencies like Bitcoin might get you in trouble with the Internal Revenue Service (IRS), therefore it pays to know the regulations. You may be taxed on any digital assets you purchase, sell, or use as payment for services. If your employer or client paid your salary to you in cryptocurrency, that income is taxable.
Your 1099-k reports details of your currency transactions, which often involve converting the value of your cryptocurrency when you buy and sell it into dollars. You can also use tax calculators to better understand your estimated tax, a few to name are tax bracket calculator, 1099 tax calculator, etc.
The cryptocurrency tax rate
Ordinary income and capital gain income are the two main categories of revenue. Long-term capital gains or recent capital gains are both possible. The answer to the frequently asked question “can I pay taxes on cryptocurrency” is “yes.” When you get payment in cryptocurrency for goods or services or through an airdrop, the money you got may be subject to regular taxation. If you are establishing your cryptocurrency, the capital gain will be determined from the net gain or loss. All cryptocurrencies are classified as capital assets by the IRS, and you must pay taxes when you sell them for a profit. When you trade more conventional investments like funds or equities, the exact same thing happens.
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Crypto taxes for purchases of cryptocurrencies
When you use cryptocurrencies to pay for products or services, your purchase counts as a sale of that coin. This means that if the value of your currency has increased beyond the price you originally paid for it, you will be required to pay capital gains taxes. Furthermore, you might additionally owe any applicable sales taxes.
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Cryptocurrency mining taxes
When you earn bitcoin through mining, receiving it as a reward, or exchanging it for goods or services, it is added to your usual taxable income. The entire fair market value of the cryptocurrency on the day you founded it is what you owe in taxes. Furthermore, if you keep the cryptocurrency you mined or acquired through these activities, its value increases and you may either use it for something else or sell it at a profit in the future.
How can you get your crypto?
Keep track of every transaction
You need to keep a record of every bitcoin transaction you make, including the price you paid for it. Additionally, consider how long you can accept it for and how much you paid for it, as well as how each transaction is handled. Your crypto exchange might provide you with a 1099-B that reports your cryptocurrency transactions to the IRS and to you.
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Complete the appropriate tax forms
Depending on how you used your cryptocurrency, you might need to complete specific tax forms if you have a record of your transactions:
Form 8949
If you ever wonder whether you should pay taxes on cryptocurrencies, just follow the necessary steps. This form records every cryptocurrency purchase or sale as an investment. This could include the total amount of currencies, the date and price at which you bought and sold, as well as your profit or loss on each transaction.
Submit Your Taxes
You can tie records you keep in software to the online tax software of your choice. After that, you can file your entire state and federal tax returns using the online tax programme.
Conclusion: By understanding the taxes levied on cryptocurrencies and claiming the appropriate deductions, you may make sense of the foregoing issues. Try to link your cryptocurrency wallets and exchanges so you can keep track of your transactions and complete the paperwork you need to file your bitcoin taxes.
You can check out FlyFin, if you are a 1099 employee and also get 24/7 CPA support for all tax-related questions.
