Bitcoin Taxes: Yes, You Need to File Them at Tax Time – Team Joff Paradise
Once you sell your crypto, the gains or losses become “realized” and there are tax implications. Your Bitcoin investments are the same as any other capital asset and the IRS takes cryptocurrency taxation seriously, so it’s wise that you do so too. In this video, you’ll learn everything you need to know about Bitcoin and taxes. Let’s begin with a primer.
Unlike bitcoin, we tend to think in terms of dollars and cents when it comes to taxes, but it really makes little difference to the IRS. If you didn’t know, virtual currency is considered to be property. The same principles apply to bitcoin as when buying or selling a home. Here’s a quick run-down to understand it all. First, a capital asset is anything you own, such as your home, cryptocurrency, stocks, bonds, etc. Second, the basis is exactly the amount you paid to purchase said property, including any fees. And third, Capital gains and losses are the profit or loss incurred for said property and remain “unrealized” until you actually sell the property. What does this mean? Once you sell your crypto, the gains or losses become “realized” and there are tax implications. Now let’s get into it.
GAINS AND LOSSES
Since the IRS has determined that bitcoin is considered property, not currency, accrued long-term gains and losses will be taxed at each investor’s applicable capital gains rate. Long-term means the property or crypto has been owned for one year or longer before being converted to fiat. This is good news as opposed to gains and losses being taxed at ordinary income rates, which is the case with short-term gains and losses. The IRS caps net capital losses at $3,000 per year for married and single filers on personal tax returns. This limit has been effective for nearly 40 years, and it means that large short-term trading losses may have to be carried forward for years. So, if you have suffered trading losses it’s important to understand the write off is not the same as with “foreign currency” losses against ordinary income.
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