The Tax Implications of Owning Cryptocurrency

When you buy cryptocurrency, you must understand how these currencies will be taxed. There are a few tips below that explain how taxes impact cryptocurrency. You need to ensure that you have thought about how long you will hold these currencies, how much money you are making, and what your tax bracket will be when you sell.

How Long Did You Hold Your Cryptocurrency?

Cryptocurrency taxes are charged based on how long you hold the currency. Some people prefer to hold on to their cryptocurrency for a very long time, while others plan to spend it much sooner.

If you hold the currency for more than a year, you will pay 15% tax on anything you make. If you make over $425,800, you will pay a 20% tax. This evidence indicates that cryptocurrency is favorable as opposed to other currencies because it is not taxed at the higher levels that stocks, gold, and collectibles experience.

How Much Cryptocurrency Do You Have?

You would need to buy a lot of cryptocurrency to move into a higher tax bracket. When you are calculating your taxes at the end of the year, you can drop your income level by selling your currency that you have not yet held for a full year. Someone who sells their currency before one year passes from when they bought it, they will pay a lower rate depending on the total value that was earned.

You pay 15% when you do not reach the one year mark, and you can keep that tax rate at 15% unless you manage to reach the $485,000 level. That is a good way for you to invest because you may not want to get bumped into a higher tax bracket and end up with less money overall.

Plus, you might want to consider how much you want to carry for the year. You could change your investment philosophy if you are simply using these currencies to make money during the year. Once you have made money, you can sell off the coin before the year ends. You can buy a new set of currency at the beginning of the next year, and you will not need to worry about paying higher taxes.

Do Tax Rates Apply To All Cryptocurrencies?

Yes. All cryptocurrencies are taxed in the same way. These currencies are unique because they might include real coins, virtual currency, and other products. Because of this, you need to make sure that you have thought over what your options are. You could invest in these currencies as virtual currency, and you will pay the same tax rate if you have real coins. This means that you do not need to worry about paying different taxes if you somehow manage to collect the coins that are offered by these companies.

Conclusion

Cryptocurrency is a good thing for you to invest in because the tax rates are so much lower as compared to traditional currencies, stocks, and other investment tools. You can keep your tax rate at 15% so long as you do not hold your currency for more than a year. However, you also need to decide why you are investing. Some people will use these currencies to make money during the year, and their tax rates will stay low. If you plan to invest in the future, you must be prepared to pay up to 20% in cryptocurrency taxes on your income.

 

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