How to: Calculate your crypto taxes
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Cryptocurrencies are taxed in a number of countries. Buying, selling, or trading cryptocurrency is frequently a taxable activity. You’ll need to include both capital gains and losses when calculating your taxes. If you get crypto as payment, you may also have to pay income taxes.
Because each jurisdiction is distinct, it’s a good idea to speak with a tax professional. Tax authorities frequently collaborate with cryptocurrency exchanges to keep track of crypto transactions. If you try to avoid paying taxes, you may face financial fines and heavier consequences.
You’ll most likely have to pay crypto taxes at some time if you HODL or trade. Tax authorities commonly classify crypto assets as capital assets; however, the exact amount differs by country. Paying your needed taxes is a legal requirement, therefore, it’s critical to get it right.
Also Read: Ask the Orb: 4 things to consider when using a crypto debit card.
How is cryptocurrency taxed?
The country’s official classification will determine the taxation of Bitcoin and other cryptocurrencies. Crypto is frequently treated as a capital asset rather than a currency by tax authorities. Expect your crypto profits to be taxed according to their official designation if your country hasn’t established specific crypto taxation legislation (if any).
Other jurisdictions take a considerably easier method. For example, there has been no tax on crypto kept in Germany for nearly a year. In Malaysia, Portugal, and Singapore, crypto tax laws are likewise relatively lenient.
The profits you make from Bitcoin or other digital currencies may be taxed as well. You’re likely obligated to pay income tax on your crypto earnings if you’re a full-time employee, freelancer, or crypto trader paid in crypto. The amount you make is frequently determining your income tax rate.
You may not pay any tax on your income if you earn less than a particular amount of money. Different income brackets are common, with higher income bands paying higher tax rates. Find out if you’re subject to capital gains or income tax if your principal source of income is from trading.
How do I calculate my taxes?
Your tax burden should be quite simple to determine if you’ve bought bitcoin, HODLed it, and eventually sold it. Examine a simplified example from the United States. First and foremost, we must calculate our capital gains and losses in US dollars. Here’s how it works:
Fair market value — Cost basis = Capital gain / Loss
The current spot price on an exchange like Binance is the fair market value. The original price you paid for the item, plus any fees, is known as the cost basis.
Assume you acquired two Bitcoins for $10,000 and sold them for $30,000 two years later. You now have a total of $40,000 in capital gains:
$60,000 (fair market value) — $20,000 (cost basis) = $40,000 (capital gains)
How do tax authorities know about my cryptocurrency?
The IRS, ATO, CRA, HMRC, and other taxing authorities keep track of bitcoin transactions and enforce tax compliance. Authorities work with large bitcoin exchanges as well.
To identify bitcoin users, governments utilize data analytics tools like Chain analysis. They can link blockchain transactions from regulated cryptocurrency exchanges to personal cryptocurrency wallets if they have adequate data. These analytics even comprise many levels distant from trades to counteract tax evasion.
The IRS and other tax authorities collaborate and share data with other government entities, academic institutions, and international governments to exchange information regarding bitcoin usage.
What happens if I don’t file my cryptocurrency taxes?
Tax authorities in many nations compel you to file your taxes regularly. Even if you owe no taxes or need a refund, this can happen. Fees, penalties, interest, confiscated refunds, audits, and even jail time can be imposed if you don’t file.
Closing thoughts
It’s critical to do your taxes correctly. If you have any worries about how to calculate your tax due, you should get professional assistance. So if you trade either PRV2 and PRVG or simply hodl them, make sure that you check your local tax implications to avoid any consequences accompanied by tax evasion.
Also Read: How to: Use candlestick patterns
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