In the United States, cryptocurrencies like Bitcoin are considered taxable property. According to the Internal Revenue Service (IRS), cryptocurrency is similar to a property asset. Thus, any transactions or gains from cryptocurrency should be reported for tax purposes.
As digital currencies are becoming relevant when it comes to various trade and investment activities, income from such transactions is to be levied tax. For instance, in retail transactions such as buying and selling of goods where a cryptocurrency is used, a capital gains tax shall be incurred.
Today, cryptocurrencies are also treated the same as other currencies like the dollar and the euro. Other transactions like donating, gifting, and even inheriting cryptocurrency particularly, bitcoin, are also taxable.
Different Taxable Crypto Transactions
- Retail transactions using cryptocurrencies – purchasing or selling goods and services using cryptocurrencies are taxable.
- Crypto mining – gaining cryptocurrencies through mining where you have solved some complicated equations and have recorded data in the blockchain. As compensation, one can receive cryptocurrencies as new tokens and the total value gained will be taxed.
- Crypto investment – if you are selling cryptocurrencies to a higher price compared to the value you have bought them before.
- Crypto as an airdrop or a reward – cryptocurrencies gained in a form of an airdrop or reward because of marketing promotions are taxable as well.
- Crypto conversion – converting one type of cryptocurrency to another shall be taxed. For example, if you exchange bitcoin to ripple, that transaction would be taxable.
- Crypto donations, gifts, and inheritance – cryptocurrencies that are voluntarily given through donations, inheritance, and gifts are also taxable transactions.
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