While cryptocurrency is new, it is like any other investment at the end of the day. That means if you invested in crypto and made a profit, you will have to pay taxes on those profits. Although the virtual currencies can have wild fluctuations that make tracking gains and losses all the harder, any profits will still have to be declared to the Internal Revenue Service (IRS).
Even an “honest mistake” can result in costly penalties, according to the IRS. The IRS has been uncharacteristically lax when it comes to the enforcement of taxes on cryptocurrency in the past, but the agency is now approaching the issue with renewed vigor. Tax filers must now check a box on their 1080 tax form to indicate if they’ve been engaged in any digital currency transactions. The agency has also been paying closer attention to cryptocurrency exchanges, which is part of the reason why the IRS has hired an army of new auditors.
With this in mind, 2022 is not the year to press your luck by failing to disclose profits made on crypto.
Capital Assets
Because the IRS sees crypto like any other capital asset, taxes must be paid on gains. That means if you bought a cryptocurrency low and sold high, it would be treated just like a stock. Investors can expect to pay a short-term capital gains tax on a currency that was held for a year or less, and long-term capital gains taxes may be owed on positions that were held for longer than one year.
“The long-term capital gains tax rate is more favorable for most taxpayers, as it tops out on most transactions at 15%. For single filers with an AGI of $40,400 or less – or $80,800 or less for joint filers – the long-term capital gains rate drops to 0%. Short-term capital gains, on the other hand, are taxed at your ordinary income tax rate,” GoBankingRates.com reported.
In addition to taxes on sales of bitcoin, dogecoin, or other cryptocurrencies, taxes may be owed for cryptocurrency transactions. While the IRS may not tax you for spending your…
