Cryptocurrency, also known as "crypto", has become a hot topic in recent years. With the rise of Bitcoin and other forms of crypto, more and more people are wondering how this new form of currency will be taxed. Is crypto considered property? Currency? Something else entirely? Let's look at how crypto is currently classified for tax purposes.
How is Crypto Taxed?
As of right now, the IRS classifies cryptocurrency as property. This means that crypto is subject to capital gains taxes. That means if you sell your crypto for more than you bought it, you'll owe taxes on the difference. For example, let's say you bought 1 Bitcoin for $10,000. A year later, you sold that Bitcoin for $15,000. You would owe taxes on your $5,000 in capital gains.
This can get complicated if you're frequently buying and selling crypto, or if you're using it to pay for goods and services. Fortunately, there are a number of crypto tax software platforms that can help you track your transactions and calculate your taxes owed.
For example, the Ledgible Platform, comprised of Ledgible Crypto Tax Pro for tax preparers and Ledgible Enterprise Accounting for business accounting, offers easily integrable solutions for professionals. If you're a tax professional, tax preparer, or CPA, Ledgible Crypto Tax pro can provide automated reporting, and client management, and calculate the necessary capital gains, cost basis, and other necessary figures to file taxes on all sorts of cryptocurrencies. In essence, Ledgible Crypto Tax Pro makes cryptocurrencies and digital assets, like NFTs, legible
What About Businesses?
The IRS has said that businesses that accept crypto as payment must report it as income. So if you're a business that takes payments in Bitcoin or other forms of cryptocurrency, make sure to track those payments and report them to come tax time.
Similarly, businesses that mine cryptocurrency or offer services related to cryptocurrency must also pay taxes on their earnings. This includes things like transaction fees charged for mining services or commissions charged for facilitating trades.
Cryptocurrency is a hot topic these days and with good reason. As crypto becomes more popular and mainstream, more people wonder how it will be taxed. The IRS has classified cryptocurrency as property for tax purposes, which means it is subject to capital gains taxes. Businesses that earn income from cryptocurrency must also pay taxes on those earnings. Luckily, there are a number of software platforms that can help track your transactions and calculate your taxes owed.