Before starting any endeavor, it's a good idea to familiarize yourself with potential costs and benefits. While crypto remains the best financial option today, with rising growth and choices, it also has specific regulations. Crypto has been integrated into our daily lives, and with that came a multitude of purposes, but also laws, which aim to level the playing field for all. While taxes may not sound enticing or exciting, they are a part of the crypto business that each potential user must familiarize himself with.
1. Examples of Taxable Crypto Cases
Crypto offers, potentially, an incredible chance for monetary gains, but these all fall under tax laws. Gains from crypto don't differentiate from other forms of capital gains under new tax laws. For example, any income you would gain from selling your crypto assets is taxable, but if you sell them at a loss, you may be entitled to a tax deduction. Such situations show how some assets being taxable can also benefit the taxpayers.
Potential gains you may achieve from any crypto gambling site are taxable income because they are treated as gambling gains. Even when you mine crypto, the mined coins are taxable at the moment you've received them. They are valued at a fair market price, which can be beneficial if your cryptocurrency rises in value between the two points. Let's say you do any job or service for a third-party individual or a corporation. If they pay you in cryptocurrencies, that gain is treatable like any other form of payment, and it's taxable.
2. Non-taxable exempts
Only some things you do with crypto fall under laws and regulations, and such areas can benefit your crypto business. For example, buying and holding crypto is exempt from taxes, as you are not doing anything with them. Only later, and only if you sell them, does the taxation happen, because the potential gains and income occur, but as long as you are amassing your crypto portfolio, no taxes will occur.
The same applies if you have good fortune and receive crypto as a gift. That gift status is only lost when you choose to do something with your crypto, like selling or engaging in a taxable activity. Since it's the season of gifting, the same gifting laws apply when you give someone crypto. You can give one person up to $15,000 per year, and that gift is exempt from paying taxes. Here, you can even go further, and transfer crypto to purchase goods and services, which can be interpreted as a gift. In other situations, you must fill out a gift tax return form.
One important item to know is that any crypto you transfer between your wallets is non-taxable. So, any internal transfers between your crypto accounts and blockchain wallets are safe, and you lose nothing to taxes, at least.
3. Special taxable situations
As crypto is different from other traditional forms of payments, some special situations may happen, but it's still important to know if these fall under any taxable laws. For example, you may be holding cbETH, restraining yourself from selling or buying, and gaining some passive rewards or income. These gains are all taxable, and holding cbETH falls into that category.
Let's say you start working for any company, and as an incentive to work, you get a crypto Airdrop. These can also happen from a marketing campaign, promotion, or giveaway. Regardless of the source, such activities are all taxable, since you gain cryptocurrencies in an X amount of value. Buying, selling, gifting, and receiving are all listed above, but you can still gain crypto from various other reward programs.
The list is expanding and growing, as individuals and companies find new ways to incorporate crypto into their businesses. In a scenario where you were given crypto as a reward for learning, promoting, referral programs, or any other direct or subtle ways, the crypto you would gain from such action is subject to tax laws.
4. All reporting is mandatory
An important distinction to crypto tax laws is that you, as a miner, broker, or a crypto user, won't get a direct 1099 tax form, or anything similar. Since the IRS does not get direct reports from various crypto intermediaries, it's up to individual users to report their crypto business. Any crypto user should be aware that even if crypto is different, it's still taxable, and the lack of a direct 1099 form will not exempt you from paying taxes on them, as it will be considered tax evasion.
Any receipts from transactions, emails, conversations, or prof can go to your report and justify your crypto transactions, making you even liable for tax returns and exemptions. If any user can't justify their crypto cost basis, that instance is treated as an underreported income. Keeping all transaction history, receipts, and documents from your crypto operations is important.
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