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One-Year Merger Anniversary
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A Few New Legal Dramas for Your List IRS Backlog of 2020 Business Tax Returns Slow Cooker Squash, Kale, and Sausage Soup
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Win of the Month
How Is Cryptocurrency Taxed?
SO, WAIT — HOW IS CRYPTOCURRENCY TAXED?
A Quick Explanation
Many people enjoy using Bitcoin and other cryptocurrency for the financial freedom that it offers — especially because there are very few fees, if any, involved. Utilizing banks and regular stocks can come along with some large fees. However, this currency still does ultimately get taxed. Here’s how!
Realized gains are those that have been actualized when an existing position is sold for more than it was purchased. So, if the asset happens to depreciate in value and it is traded, sold, or used at a loss, you may be able to subtract the loss from other capital gains to reduce your taxes.
Calculating Taxes on Cryptocurrency Gains and Losses To determine your taxes on cryptocurrency, compare your net proceeds to your cost basis. You also must take into consideration the length of time that you owned the asset. This information is crucial for figuring out the type of capital gain or loss you recognize. Some gains or losses are determined to be “short term,” typically a year or less, and others are “long term,” more than a year. It is important to note that you can offset your capital gains with capital losses.
How It’s Taxed The buzz about cryptocurrency is that it is not backed by any government affiliation and is subject to little or no regulation. However, this is false. When a crypto exchange occurs, both gains and losses must be reported to the Internal Revenue Service. Thus, this is taxed just like traditional stocks and personal assets.
When it comes to federal income taxes, cryptocurrency is thought of as “property” and is therefore treated as a capital asset. This means that it is subject to capital gains taxes just as stocks and bonds are. If the asset appreciates in value and you trade, sell, or use it for profit, then it will be taxed just like capital gains. However, you only owe tax when those gains are realized.
Tracking your crypto gains and losses is crucial for staying on top of everything when tax season rolls around. As always, you can turn to your trusted financial advisor for professional assistance and advice
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