As dependent on the specific crypto transaction you engaged per time, there are taxable events and non-taxable events. This means that it’s possible that you may or may not owe taxes depending on given situations.
However, many of the available cryptocurrencies are convertible virtual currencies as stated by the Internal Revenue Service (IRS); which literally means that they can be swapped to get real money and also represent a medium of exchange, a unit of account as well as a store of value.
Owing to the above fact means that any profits or income from your cryptocurrency is liable to be taxed.
So as a crypto investor who owns or use cryptocurrency, it’s vital that you know and not be caught unawares as regards paying taxes on your crypto transactions.
Do you pay Taxes if you pay with Crypto?
Just as assets is being handled as pertaining taxes, that’s the way IRS does to cryptocurrencies. It’s expected that you should pay taxes at any point in time when the value of your crypto rises beyond the price you bought it.
Meanwhile, know that the transaction of making payments with crypto is a taxable event. This action will incur both a sales tax and a taxable capital gain or loss as at the time of sale. You may want to ask how???
For instance, if you buy chocolate bar with your crypto, you’ll have to send the crypto to the merchant through your wallet to theirs, including the sales tax.
Also, if the value of your crypto is now more than when you bought it, you’ve incurred a realized capital gain but if otherwise you’ve incurred a capital loss. In either of the two cases, you still need to report at tax time.
Therefore in a nutshell, you’ll be incurring two separate taxes (sales tax and capital gains tax) when you make payments with your cryptocurrency specifically when its value has increased.
Now that you’re aware that it’s a taxable event, it’s advisable for you to keep appropriate records of your crypto transactions to avoid having taxes issues by simply logging the amount you spent as well as its fair market value as at the time of the transaction.
Nevertheless, you don’t have to worry about using your entire earnings to pay tax; the payment you’re going to make will only be on crypto gains (i.e whenever you earn a profit).
Tools:
- Crypto Tax Calculator For Canada
- Cryptocurrency Tax Calculator Australia
- India Cryptocurrency Tax Calculator
- NFT Tax Calculator
- US Cryptocurrency Tax Calculator
Conclusion
Taxes as related to cryptocurrencies can be quite complicated due to its connection with both income and capital gains taxes. This means that in most cases, you’ll be taxed several times for using cryptocurrency.
Having this mindset as a crypto investor represents an indication for you to engage any professional personnel that are familiar with cryptocurrency and its current practices to help you ensure you’re reporting taxes correctly.
You may also want to consider the usage of any of the reliable crypto tax apps which has more than enough cryptocurrency platforms so as to help you work with anyone you’ve engaged.
Most importantly, the tax app will also automatically assist you in tracking all of your wallet-to-wallet transfers as well as information like cost basis.