The US tax season is just around the corner: Here’s how it will affect cryptos

The US tax season is just around the corner: Here’s how it will affect cryptos

  • After two IRS rulings, the United States is finally ready to release a tax system for the cryptocurrency sector.
  • The initial April 15 filing deadline has been postponed to May 17.
  • The tax on crypto profits is similar to a stock sale.
  • The amount paid in taxes depends on the type of transaction and the duration of the cryptos.

More than ever before, the regulatory gaze has been turned to the crypto industry. This is quite understandable given that the industry has grown by leaps and bounds over the past year and enjoys the most institutional interest and patronage of all time.

Along with the growing demands for regulation, there was a need to create an appropriate tax framework for cryptos. So far, the Internal Revenue Service (IRS) has two guidelines regarding cryptocurrency tax issues – the 2014-21 and 2019-24 IRS Revenue Rulings.

In the coming weeks, the crypto room will be taxed in the US. Here’s what you should know in the tax season:

Cryptos become taxable

The United States will tax along with countries like Japan, Russia, Australia and other cryptocurrency transactions. However, the first April 15 filing deadline has been postponed to May 17.

The crypto transaction tax is similar to the framework implemented for stock transactions. Cryptocurrencies are treated like sales of stocks, which can lead to a positive return (which translates into a tax risk on capital gains).

Tax Regulations for Buying and Selling Cryptos

With tax season approaching, everyone involved in crypto needs to understand where and how tax rules apply. All cryptocurrency transactions are taxable after the law comes into effect.

Converting your crypto holdings into fiat currency, any other crypto, or using crypto to purchase goods and services is considered a Capital Gains Event.

However, the percentage of taxes payable depends on how long the cryptos have been kept. If you hold short term business or activity (less than a year), a tax will be charged that is equal to the individual’s income tax rate.

Individuals who hold their cryptocurrencies for more than a year may pay lower taxes in the range of 0 to 20%. This depends on the individual’s income tax bracket.

On the downside

  • A judge has placed a three-year suspended sentence on a man convicted of crypto tax evasion
  • Hideji Matsuda was sentenced in Kanazawa District Court in Ishikawa Prefecture
  • In addition, Hideji Matsuda was fined $ 163,000 for hiding his earnings from the authorities

When are cryptos treated as income?

As mentioned earlier, not all crypto transactions are classified as capital gains. Cryptos from mining, staking and node validation, liquidity pooling, interest from DeFi loans, and income from crypto payments for goods and services are classified as revenue.

When a person receives crypto from any of the above sources, it is classified as income and taxed at the same tax rate that they pay on other income received during the year.

Since the tax will apply from 2020, holders will need any crypto transactions made in 2020 in order to properly generate any capital gain or income before the filing process can begin. To pay the taxes, Per Shane Brunette explains it;

Form 8949 and Appendix D are used for reporting capital gains. However, if you have transactions that are classified as income, you will also need to fill out Appendix 1 (Form 1040).

Air drops, awards, and giveaways from competitions are also classified as income.

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