In the United States, the same tax principles which are applied to assets are also applicable to the exchange or trading of cryptocurrencies. This is because these currencies, for example Ethereum and Bitcoin are treated under the federal tax law as assets too. Since the assets or property are subject to capital gains tax, the cryptocurrencies are also treated as same. The cases that demand the application of capital gains tax on cryptocurrency transactions include;
However, there are other transactions which involves the use of cryptocurrencies but do not apply under the capital gain tax:
There are also distinct scenarios that point out how people declare their cryptocurrencies and the tax implications. These scenarios has specific ways through which the tax implications apply to them. They include;
In the US, the sale of cryptocurrency that is mined is taxed as a business income. This is because some miners receive dollars as income for the work done doing mining. The tax paid by miners is often accrued from the amenities used during the mining process such as electricity and PC hardware.
The cryptocurrencies used by people for the purchase of goods bought and services rendered are also declared and taxed. It is therefore expected that the current price of the cryptocurrency that is used to pay for the goods bought or service rendered is known. The price of the cryptocurrency is therefore deducted from the cost of the goods or services and then the difference is taxed. Hence, the prices of Cryptocurrencies that are stored in wallets should be checked constantly to ensure that you are aware of the current price.
Customers who own a particular cryptocurrency, say bitcoin, and intend to exchange it for another cryptocurrency such as Ethereum, are expected to find the price of the bitcoin when it was bought and when it is about to be exchanged for the other cryptocurrency. It is also important to know the price of the new cryptocurrency you want to obtain through the exchange. The exchange of cryptocurrencies is also requires the payment of taxes. Most of the cryptocurrencies that are exchanged are mostly stored in different exchange trading platforms. It should be noted that cryptocurrencies exchanged for fiat currencies are not charged for tax. Presently, the internal revenue service (IRS) is informing the public through the article published on the ways of how to be familiar with the processes of the old tax returns involving cryptocurrencies.
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