Cryptocurrency Tax Myths Busted so That You Play Safe
By Space Coast Daily // April 11, 2022
The market of Cryptocurrency and its popularity is growing every single day. More and more people started investing in cryptocurrencies and want to pay with Bitcoin as they started learning more about them. It seemed like a more convincing and better investment option when compared to the other options. As there is no governing body for cryptocurrencies, there is no third party involved, people think that it is one of the fastest and easy ways to invest or transact with crypto. But whether it is fiat currency or digital, tax is inevitable.
The tax laws and rules around cryptocurrency are getting more and more strong. As this was something people did not expect during the early days of cryptocurrency, it is a bit confusing for people to understand.
Cryptocurrency is different from fiat currency, and so are the tax rules. There are several myths surrounding cryptocurrencies. Here are cryptocurrency tax myths that can help you play safe when you are investing in it.
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Cryptocurrency tax myths:
Here are some major cryptocurrency myths busted so that you play safe:
Compensation amount not taxable:
There is a very common myth around the crypto tax, that the amount received in the form of compensation is not taxable. That means any amount that is received for any products you sell or services that you offer is not taxable. But that is not true. It is considered as an amount that is equal to the fiat currency and hence you will have to show it in Fair Market Value. It is taxable like any other amount that is paid in the form of fiat currency.
Currency is taxed only when converted to Fiat:
Another very common myth is many people think that cryptocurrency is taxed only when you convert the coins into fiat currency. But that is not true. When you are converting one crypto to another cryptocurrency, even that is a taxable transaction. Even if you are transferring the crypto to other platforms for transactions before converting to fiat, the entire transaction is taxable. So, be very careful next time.
You cannot lower your tax amount:
Some people think that there is no way you will be able to lower your tax amount. There is a myth that even if you lose some money in one transaction or sale, the total amount that you made a profit will be taxable. That is not true. If you have made a profit of $20 in one sale and lost $10 in another sale, then only $10 will be the taxable amount. But it all depends on what transactions you are showing while tax calculations.
Another mistake that many people do while filing the tax data is they import data of the current year for which they are paying taxes. But it is very important to import the entire data from the very beginning for better and more accurate calculation of information. If you sell some crypto coins in the current year for some profit.
In case you don’t import the entire data, then you will be taxed for the entire amount. But if you import all the data, the investment amount will be deducted and only the profit amount will be taxed. So, you need to be very careful while importing the data.
Trading in cryptocurrency is not taxable:
People think that only buying cryptocurrencies, converting them to fiat, or selling them for profit is taxable. But even if you are trading with crypto, it is taxable. Buying one cryptocurrency with another cryptocurrency is taxable. You cannot escape tax if you are just investing all your investment amount along with profits, on another crypto. So, you need to play safe.
These are some of the very common myths surrounding cryptocurrency tax. There are many more such myths around tax and crypto. You just need to start gathering enough information about both crypto investments, trading, and tax rules to play safe. You will end up losing your investments or paying excess tax if you are not having complete knowledge about them. Spend enough time to gather all the information that you need before you start investing or trading. That will keep you safe.