Tax would always be triggered whenever you sell cryptocurrency for capital gain. It was declared by the IRS in 2014 and formulated as a crucial part of cryptocurrency. But what if you don’t report on tax in this case, you would be fined by the IRS.
In this article, we will discuss how to report on taxes, why it is important, and what happens when we don’t pay the tax so let’s get started!
What are Crypto Taxes
Crypto taxes is the specific amount that would be deducted from the capital gain. Capital gain means the net profit that you earned from digital assets. It is owed on cryptocurrency transactions, such as buying, selling, trading, or exchanging cryptocurrencies like Bitcoin or Ethereum. Also, it's crucial to accurately disclose all cryptocurrency transactions on your taxes because doing otherwise may subject you to fines and penalties. To make sure you are in accordance with the law, you may want to think about consulting with a tax expert who is knowledgeable about bitcoin tax reporting.
Cryptocurrencies are liable to federal income tax in the United States since the International Revenue Service (IRS) considers them as property for tax purposes. This means that cryptocurrency transactions can result in capital gains or losses, which must be reported on your tax return. The calculation and reporting of crypto taxes can be complex, so it's recommended to work with a tax professional who is familiar with cryptocurrency tax reporting to ensure that you are in compliance with the law.
How to Report Crypto on Taxes
To report cryptocurrency on taxes, you need to follow these steps:
- Calculate your gains and losses: Determine the difference in each bitcoin transaction's purchase and sale prices.
|Purchase Price - Sale Price = Capital gain or loss.|
- Report gains on your tax return: Report any capital gains from cryptocurrency trades as income on your tax return.
- Use IRS Form 8949: Use IRS Form 8949 to report your cryptocurrency transactions and calculate your capital gains and losses. There are so many other forms like (Schedule D, Form 1040, Schedule 1, and Form 1099-K).
- File taxes: File your taxes, including Form 8949, with your annual tax return.
Advantages of Crypto Taxes
- It ensures compliance with tax laws and regulations
- We always maintain each transaction record to report cryptocurrency taxes and this record may help in auditing.
- Capital gains
Disadvantages of Crypto Taxes
- Limited Understanding
- It is costly
Is It Important to Pay Taxes on Crypto
Yes, it's important to pay taxes on cryptocurrency transactions. In the United States, the IRS declared it as a feature of a cryptocurrency, making cryptocurrency subject to federal income tax. This means you must have to pay tax and the specific amount would be deducted from the capital gain with respect to tax. If you show laziness to pay taxes you have to pay fines and penalties in return.
What Happens When We Don’t Pay Taxes on Crypto
If you show laziness to pay taxes on cryptocurrency transactions you could face the following consequences:
- Legal Consequences
- Penalties and Fines
- Audit Risk
- Criminal Charges
- It may consider tax evasion and fraud
Crypto tax is the specific amount that would be deducted from the capital gain and it is declared as the mandatory part of cryptocurrency by the IRS. In case you don't pay tax, you will be reported by the IRS and you have to pay high penalties and fines. Most of cases they can take a charge of tax evasion fraud and criminal charges.