I told my accountant that I was not paying crypto taxes this year. Earlier in the year, I was so happy. I had made some good money buying and selling Bitcoin.
And I generally know that when you buy and sell an asset like crypto, you have to pay capital gains tax on it. But I didn’t want to give the government even more of the money I needed to live. So when I told my accountant that I was not paying crypto taxes, she said I had to. However, she also said, “Hey, Pushkar, if you don’t wanna take my word for it, why don’t you speak to an accountant who specializes in crypto taxes?” So that’s what I did.
Do You Have to Pay Taxes on Your Crypto Earnings?
Do I have to pay taxes on your crypto gains? – So, the answer is yes, you do have to pay taxes on your crypto gains. And it’s even asked as one of the first questions on page one of your tax return.
How Much in Crypto Taxes Do You Owe?
if you have to pay income tax on your crypto gains, how much do you have to pay? – So the amount of tax you have to pay depends on your circumstances. It largely depends on whether you’ve made money or lost money and whether you’ve held the asset, the cryptocurrency, for more than one year or less than one year.
If you’ve held your Cryptocurrency for less than one year, any gains that you have will be taxed at your ordinary-income tax bracket. This is the amount and percentage of tax you would pay on your wages from your employer.
But if you’ve held your Cryptocurrency and then sold it after one year, then you get a favorable tax rate, which is called the capital gains rate. That ranges from zero to 20% based on your taxable income level, with most of America being taxed at 15%.
Do You Need an Accountant or CPA to Do Your Crypto Taxes?
All this sounds complicated. let’s jump to another question; Do I necessarily need to hire an accountant to help me pay my taxes on my crypto? – The answer there is, no, you don’t have to. What you need are good books and records.
For all of your crypto activity, you need to know four dates, the date you bought the Cryptocurrency, how much you paid for it, the date you sold the Cryptocurrency, and how much you received. I will say that if you’ve got 50 or 100 transactions, or if you’re in the lucky group of crypto millionaires, then I would suggest having someone look at your books and records to make sure it’s accurate. Of course, you’re taking advantage of all the favorable tax brackets available, but it’s not a complex calculation.
Crypto Tax Strategies for 2022
Now I got a question for you that I think you’re prepared for. And that is, how do we crypto thousandaire prepare for paying for taxes in 2022? – So, of course, everyone’s goal here is to pay as little tax as possible. So there are a few things that you can plan for to minimize the check that you’re going to have to write to the IRS.
- You kept good books and records and chose the ones with the highest price you paid to minimize the gain.
- Secondly, keep a real close eye on the date that you bought your Cryptocurrency to decide which ones were sold. Because that favorable tax rate only applies if you’ve held the Cryptocurrency and then sold it after one year.
- And then lastly, I would say the IRS looks at all of your property as one bucket of gains and losses. So if you have gained on your Cryptocurrency, but you may have losses in some of your other investments, let’s say you invested in Home Depot or other publicly traded stock. You can sell that other stock that may be in a losing position, which offsets the gains you have in your Cryptocurrency. And then again, the IRS only looks at the net total.
The point of this informative article is that you may not have to. Before you ever invest in anything, it’s imperative to read up on it and to speak with knowledgeable people about your investment. If I had talked to Financial Expert before I invested in Bitcoin, I bet my taxes would have been a lot lower, and maybe, I wouldn’t have had to pay any tax at all!
My name is Pushkar. If you want to learn more about Cryptocurrency in a straightforward explanation, then do check out our most viewed articles only on cryptocurrencysimple.com.