Cryptocurrency (Bitcoin, etc.) has become a popular way to add financial value to one’s portfolio. Many Atlanta, Georgia, residents have begun investing in cryptocurrency to sell when they face hardships or spend on personal and business purchases.
The Internal Revenue Service (IRS) treats cryptocurrency as a capital asset, subject to capital gains tax rules. Purchasing crypto does not result in tax burdens, but what you do with it could increase the taxes you owe.
General cryptocurrency tax information
If you owned your crypto for fewer than 12 months before selling or using it, the IRS will impose short-term capital gains tax rates. If you wait 12 months or more before selling, you can expect long-term capital gains tax rates.
Cryptocurrency taxing points to remember
As mentioned previously, what you do with your crypto can impact your taxes. Below, we will discuss two often-unexpected issues that arise when using or mining cryptocurrency:
- Using crypto: When you use your currency to buy something, it is nearly the same as if you had sold the crypto instead. If the crypto was worth more at the time of your purchase than when you bought it, expect capital gains taxes (on top of any sales tax you paid) to apply.
- Mining crypto: Most people who mine crypto are self-employed entrepreneurs or budding investors that mine in their free time. If you earn your cryptocurrency through mining, it will count as part of your income. As such, you will owe taxes on its fair market value (at the time you received it), taxed at your regular rate.
Investing and trading in cryptocurrency can significantly increase your wealth. However, it is critical to make sure you understand the tax laws involving crypto. If the IRS is already knocking at your door over your cryptocurrency, learning more is especially critical.