Crypto & Taxes: Can You Pay Taxes in Crypto & How Is Crypto Taxed?

Do governments tax crypto assets, and can they do this? What if you won the money from your cryptocurrency investment in an online casino for real money? According to the IRS, cryptocurrency is a convertible property or asset. People use crypto assets as a unit of account, and it is a store of value. Therefore, it is taxable.

Here is a summary of how and when crypto assets are taxed:

• If you made a profit from selling cryptocurrency, then you made capital gains, and you must pay capital gains tax
• If you use cryptocurrency to buy goods and services, you must pay tax for the difference in price from the time you bought the crypto and the time you used it to buy goods, but only if the crypto price is higher than what you bought it for
• You must also pay taxes if you accept cryptocurrency as payment.

When Do You Pay Taxes for Cryptocurrency?

The thing with cryptocurrency is that it is not taxable as it is. However, it becomes taxable only if you accept it as payment or once you sell it.

What does this mean? It means that you do not pay taxes for buying cryptocurrency. You also do not pay taxes as you hold the cryptocurrency in its form. Once you sell your crypto assets and you earn a profit, the IRS will see that as a capital gain.

On the other hand, you must pay taxes if you accept cryptocurrency as payment for goods and services, whether or not the crypto asset went down or up in value.

When Is a Crypto Asset Not Taxable?

Cryptocurrency assets are not taxable for the following reasons:

• You bought the cryptocurrency with fiat money
• You donated the cryptocurrency to a charitable institution or a non-profit organization
• You used cryptocurrency as a gift to someone
• You transferred your cryptocurrency assets to another wallet.

Whenever you cash out your crypto assets, you will pay taxes. What you may not know is that when you use it to buy, you are also paying taxes because the seller already included that cost in the crypto price of what you bought.

Do You Pay Taxes when Mining Cryptocurrencies?

When miners receive cryptocurrency, this asset is a reward for getting work done, like a salary. As such, it is also taxable. However, if the mining activity is merely a part of a business, it gets complicated. The business will say that the cryptocurrency earned is an income, and yet the business can deduct the cost of mining from its expenses, such as the hardware or computer used for mining and the expense of electricity.

Do You Pay Tax for Exchanging Crypto?

Yes, if you use a crypto asset to buy another crypto asset, you must pay tax. The logic behind this is that you used it as a medium of exchange. Since you used one crypto to buy another, there is something that you may have gained. Exchanges that facilitate a transaction like this are already baked in the tax. If not, you must report your gains and losses to the appropriate authorities.

How Do You Report Crypto Taxes?

Like all financial transactions, you need accuracy to file the right numbers. It all starts with tracking your investments. What matters here is that you logged the value of your crypto assets when you bought them, what date, and how much they were by the time you sold them.

Typically, people do this the manual way, with physical or digital ledgers. However, there are blockchain solution programs that help you track your crypto assets. An example of this is CoinTracker. CoinTracker provides an easy way to manage and track your crypto portfolio. As such, it is also easier for the user to file taxes when the time comes.

How Much Tax Do You Owe?

It depends. In the United States, each state and city charge a different tax rate. Some cities do not charge income tax, but they do charge a sales tax. It is always best to speak to an accountant and find out what is expected of you.

Can You Avoid Paying Taxes on Crypto?

You only pay crypto tax once you realize gains. Treat it like a stock. You will not be charged a tax for as long as you are holding on to that asset. Once you sell your crypto assets and you earn a profit, you must report that and pay taxes. The same is true if you use crypto to sell items online.

So, essentially, you cannot avoid paying taxes in crypto now that it is treated as an asset or property. You can hold on to it until it grows, but you must know that you have a liability to pay your taxes once you cash out.

At best, you must use cryptocurrency for business. If you do, you can deduct expenses and reduce your tax. In this case, however, you will have to prove your expense with receipts. Of course, you also cannot do this unless you are a legitimately registered business.