Cryptocurrency is often projected as the privacy-centered, censorship-resistant form of economy where the peers on the network have the control of the system rather than a centralized institution taking complete control. However, it does not exclude the crypto users from paying taxes.
Wherever the cryptocurrencies are regulated, the users need to pay taxes on their crypto holding just like the fiat. The problem is, there is no clear indication or set of rules compiled to make the crypto users aware of the crypto taxes.
This article would help you understand how crypto taxes work and what are the parameters set by the Internal Revenue Service’s (IRS) on crypto taxation.
Cryptocurrency Trading and Sales Are Taxable
As per the IRS guidelines, anyone trading in crypto needs to report all their trades and sales to the IRS and they are subjected to taxation. Every crypto conversion to USD or vice versa is subjected to taxation, which means the exchanges providing trading services for crypto comes under the same.
This might come in as a surprise since every work related to the crypto are done by the users themselves. However, not paying crypto taxes falls under the bracket of tax evasion and those trying to evade it are subjected to heavy fines and even jail term. Under the current circumstances, if you are found guilty of tax evasion, you might have to pay $250,000 fine and can land you in jail for up to 5 years.
Cryptocurrencies Are Taxed Under Property Laws
The IRS considers cryptocurrency as property and not a financial entity, thus the taxpayers need to pay capital gains over their crypto holdings. The US tax laws for property holdings comes in two forms, one is called long term where the taxpayer need to pay capital gains if they are holding the crypto for more than a year.
The short-term capital gains are paid for holdings of less than a year. Long-Term capital gains are much profitable. Even those employees who are paid in cryptos need to declare their holdings to the IRS.
Even the Miners Need to Pay
If you are a miner and thought that your crypto earnings are exempted, then you are in for a bad surprise as the IRS has taxed even the crypto earnings by securing networks. So, not only the traders and institutions offering the crypto service fall under the tax radar of the IRS but even those who earn crypto by providing a service on the network.
Its quite hard to grasp the fact that cryptocurrencies are subjected to taxation, as many crypto pundits have echoed the use of cryptocurrency to evade complex and unfair taxation. However, the community needs to understand that regulations bring in a ton of complexities along with it and taxation is the biggest one.
Take John McAfee for example, the CEO of the software solution company who is also running for the president is living in exile since he refuses to pay taxes on his crypto holdings. So, yeah whether you like it or not, if crypto regulations are put in place it would lead to some form of taxation.