Crypto World is an unregulated and volatile market. Consequently, it attracts a lot of traders irrespective of their experience. The value and growth in the cryptocurrency world has led to some new players getting into the game with absolutely no idea about how to operate in this foreign terrain.
Throughout these tumultuous times, many people have found themselves sitting on large sums of money but are uncertain about what they should do with them. To help you find your way through the maze that is Crypto Tax, we’ve put together this guide to help you avoid making costly missteps that might hinder your future earnings from crypto trading or investing.
What Should You Do While Filing Crypto Tax?
If you live in a country where income tax is low and has favourable policies regarding cryptocurrency taxation then you may also want to trade as an individual as opposed to through an organisation like Coinbase (which would be taxed as a corporation). However, if you trade in a country where crypto is taxed at a higher rate, then it might be wise to use Coinbase as the sole account holder.
If you are located in India , then it is better to declare your trades and report any relevant transactions since even simple mistakes can be costly. In order to avoid getting caught up in complicated crypto tax laws, always be aware of all the rules and regulations that may apply to your trade or investment so that you do not face any penalties or fines from the IRS.
Few Tips To Help You Keep From Paying Taxes On Crypto When You Don’t Have To.
- If you did not buy your cryptocurrencies directly from fiat, do not sell them directly for fiat. For example, let’s say that your bitcoins come from mining or airdrops and were never exchanged for any other cryptocurrency. In this case, do not sell them for fiat currency because income tax will still apply.
- Only sell your cryptocurrency for other cryptocurrencies and not for fiat. For example, let’s say that you have some bitcoins in your wallet, which you freely exchanged with other people or had mined over the years. If you decide to sell those bitcoins then they will be subject to income tax because of the fact that they were sold for fiat currency. In this case, do not report the transaction as a gain because it will be treated as a loss instead since your funds are still sitting in a bank account.
- Do not hold onto any cryptocurrency that is needed to pay taxes or if it will delay you from selling off your holdings at what you need to sell them at. For example, if you owe a large amount in sales tax and want to pay it off, keep the coins that are necessary to pay your taxes until you have sold off what you need to sell. This will also help avoid any penalties from the IRS for underpayment.
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