This article will shed light on everything Bitcoin-related, including Bitcoin tax.
What is Bitcoin?
Bitcoin is widely known to be the very first cryptocurrency to grace the market. It was developed by a pseudonymous individual or a group of individuals under the name of Satoshi Nakamoto, whose real identity is yet to be discovered.Bitcoin has managed to draw ample attention as it operates in the absence of a central authority, which is not the case with fiat currencies such as the US Dollar (USD).
Balances are maintained on a public ledger along with all Bitcoin transactions. These are verified using an unfathomable amount of computing power.
What you Should Know about Bitcoin
There are a few essential Bitcoin characteristics that you, as a crypto trader, must keep in mind.Irreversible
Once you confirm a transaction, it cannot be reversed by anybody. No central authority or bank or anybody else you decide to approach for help can be of assistance in this situation. Simply put, there is no safety net.Pseudonymous
You receive Bitcoins on addresses that are seemingly random chains of around 30 characters. While you can analyze the transaction flow, you cannot uncover the real-world identity of the crypto users you are dealing with.Globalized and Swift
Bitcoin transactions happen on a global level and typically take a couple of minutes to occur. These transactions take more or less the same amount of time, irrespective of the physical location of the crypto traders in question.Transactions are Secure
A public-key cryptography system secures Bitcoin funds. The owner of the private key is the only one who can transfer Bitcoins.No Need to take Permission
You do not have to seek permission to send and receive Bitcoins in the bitcoin storm app. You only need to download and install the software to kickstart your crypto trading. In other words, there is no gatekeeper.Bitcoin Tax and Bitcoin Tax Rates
As per the Internal Revenue Service (IRS), Bitcoin, just like any other cryptocurrency, is considered property for tax purposes. In other words, tax laws Bitcoins are the same as those on property.The Bitcoin tax that you will have to pay entirely depends on how long you have the Bitcoin. There are mainly two kinds of tax that you will have to pay, namely, short-term and long-term capital gains tax.
Should you sell your Bitcoin in one year or less from the time you bought it, you will have to pay short term capital gains tax.
However, if you sell your Bitcoin after one year from the time of purchase, you will have to pay a long term capital gains tax.
The long-term capital gains tax rates are 0% for those in the 10%-15% income tax rate bracket, 15% for people in the 25%-35% income tax bracket, and 20% for those in the 39.6% income tax bracket.
Considering this, it would be wise to hold on to your purchased Bitcoins for as long as possible, preferably for over a year since the long-term capital gains tax is typically lower than the short-term capital gains tax.
You ought to report your capital gain taxes on the 8949 form. This is when you need to pay Bitcoin taxes -
• When you sell your Bitcoins for conventional fiat currencies such as USD• If you make use of your Bitcoins to buy goods and pay for services
• If choose to swap your Bitcoins for other cryptocurrencies
You do not have to pay Bitcoin taxes if -
• You are donating Bitcoins to charities and organisations that are exempt from tax• You transfer Bitcoins among your wallets
• You purchase Bitcoins using fiat currencies
• You are gifting small amounts of Bitcoin that do not exceed a value of $15k
• You are lending your Bitcoins to another party
• You get Bitcoins via Bitcoin mining or hard forks
Bitcoin Tax Calculators
Here are two Bitcoin tax calculators crypto traders ought to consider using -ZenLedger
ZenLedger has made its name in recent times as an excellent Bitcoin tax calculator with a user-friendly interface. ZenLedger has a plethora of features. Here are a few -• When you complete your Bitcoin tax calculation, you can download a pre-formatted file to use for TurboTax, thereby ensuring TurboTax integration.
• ZenLedger calculates the value of your holdings in foreign exchanges and tells you if you have to declare your holdings to the Financial Crimes Enforcement Network (FinCen)
• It enables Tax-loss harvesting. Tax-loss harvesting is a strategy that allows you to reduce your investment losses.
Bitcoin.Tax
This Bitcoin tax software is an excellent tool for traditional crypto traders and investors to simplify and report of their Bitcoin taxes.Bitcoin.Tax allows you to import your transaction data from a variety of leading crypto exchanges. Once your data is uploaded, this Bitcoin tax calculator generates multiple reports that cover your crypto-based income and the capital gains from your crypto transactions.
CoinTracker
Here is another phenomenal Bitcoin tax software. CoinTracker allows you to quickly review your tax summary and download the reports you need to file your Bitcoin taxes.It also allows you to track your crypto portfolio and supports fee tracking and margin trading. Finally, it has to its credit, a performance tracker that will enable you to monitor your crypto investment performance over time effectively.
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