Cryptocurrency is a popular new investment opportunity and there are new coins and tokens being released all of the time. Many people are moving away from traditional options like securities and other investments and putting their money into cryptocurrency instead. If you invested in cryptocurrency, you might have traded it a few times, accrued capital gains which means you might need to pay cryptocurrency tax. However, it is not paying more crypto to satisfy the tax bill, but paying fiat such as the US dollar. Cryptocurrency, according to the IRS, is considered property, so if you ever pay property taxes to your local city or county in crypto, you might actually be paying the IRS tax for the municipal tax you are attempting to pay. This might sound confusing, and it is, however you should know this is not considered tax advice as it is just educational, and you should seek the advice of a CPA.
What Taxes Do You Pay On Cryptocurrency?
It is generally a misconception that you can avoid capital gains tax and you could incur severe penalties if you fail to pay the tax that you owe. The IRS ruled that cryptocurrencies should be taxed in the same way as stocks in 2014.
The taxes owed are calculated based on your income and your holding period (how long you have owned the cryptocurrency). How much you will pay in taxes depends on the gain of value on your cryptocurrency when you sell it.
Short-term capital gains or losses are taxed as income, which means they fall under income tax rates. Long-term capital gains and losses mean the investor either held the investment for 12 months or more before selling it.
If you are new to investing in cryptocurrency, it is important that you record all of your long and short term gains and pay the necessary cryptocurrency tax on them or you could be penalized by the IRS. If you are interested to learn more if you can use cryptocurrency as proof of assets to purchase or refinance a home, connect with Mortgage Quote as lenders programs change all the time.
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