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Bitcoin Rally: What Investors Need To Know About Crypto Taxes

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Bitcoin Rally: What Investors Need To Know About Crypto Taxes

(CTN News) – Bitcoin’s price soared to record heights this week, and tax experts offer advice.

Bitcoin set a record of $73,000 on Wednesday, driven by demand for newly approved bitcoin exchange-traded funds. In spite of bitcoin’s dip to $67,000 early Friday, its price has still risen by more than 50% since the start of the year.

A wave of IRS crypto scrutiny is expected as the agency beefs up its digital asset service, reporting, compliance, and enforcement functions.

Whether you’ve been a crypto investor for years or have just purchased digital assets, here are some things you should know about crypto taxes.

Answering Form 1040’s ‘digital assets’ question

During this tax season, the IRS shared guidance about reporting digital currency, one of its priority areas.

Tax returns with different versions of a yes-or-no question have been collected by the IRS since tax year 2019. Among the questions on Form 1040 for 2023 are those about digital assets, partnerships, corporations, and S corporations. As Matt Metras points out, cryptocurrency investors take stablecoins, nonfungible tokens, and cryptocurrencies for granted.

In 2023, you must answer “yes” if you traded crypto for another coin, sold crypto, or received it as a payment, reward, or award. In the case of cryptocurrency purchased with dollars, you could answer “no.”.

“Yes-or-no questions have quite a lot of power,” said Andrew Gordon, a tax attorney, CPA, and president of Gordon Law Group.

The IRS could argue that you violated the law intentionally if you choose “no” for the digital assets question. It does not apply, however, to bitcoin futures ETFs or spot bitcoin ETFs, he explained.

Crypto Bitcoin taxes: how to calculate them

You may have to pay capital gains or regular income taxes when you trade digital currency or sell it at a profit, depending on how long you owned it. It’s treated the same as stocks or other property, and the gain is the difference between the basis or purchase price and the value when it’s sold or exchanged.

Depending on your taxable income, long-term capital gains on crypto can be 0%, 15% or 20%. Assets owned for less than one year are subject to short-term capital gains taxes or regular income taxes. You calculate your taxable income by subtracting the higher of your standard or itemized deductions from your adjusted gross income.

Cryptocurrency earnings can be cut in half for higher earners after one year, Gordon explained, which is why tracking the date of your purchase is crucial.

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