Before we dig deeper into crypto taxation, let’s take a look at how much crypto is taxed in the US. If you buy digital currencies outside of the US, there is a 30% withholding tax, so you will have to pay it. However, you won’t have to pay the tax on any profits you make from selling them.
Crypto Is Taxed in the US
So far, cryptocurrency has not been recognized as a currency in the US. But this, virtual currencies are subject to federal income taxes. This means that you have to pay taxes on your earnings from crypto trading and mining.
However, some states have their own rules regarding crypto taxation. For example, Texas imposes a flat 6% tax on digital currencies.
So, whether you sell them or trade them, you won’t have to pay taxes on crypto holdings. It is only an exception if you are a US citizen and reside in one of the tax-free states. In that case, you will be required to pay taxes on your earnings.
How to Manage your crypto properly
After you’ve set up your wallet correctly, you need to ensure that you never send or receive your cryptocurrencies without paying attention to the following steps:
Do not forget to include transaction fees when sending funds. This will help you to save a lot of money.
Be careful with your passwords. They should be long enough and have at least 12 characters.
Make sure that you don’t lose access to your wallet. It can happen when you don't use it for a while.
Do not send coins to yourself. This can cause you to fall into a pyramid scheme and lose all your money.
Keep in mind that it’s possible to lose your cryptocurrencies, and it’s also possible to lose access to them. This is why you should make sure that you store them safely.
Use a reputable exchange
The best thing to do after you’ve set up your wallet correctly is to use a reliable exchange. You’ll want to make sure that your transactions are always secure and that they’re processed in a quick manner.
When you use a reputable exchange, you’ll be able to enjoy the benefits of blockchain technology, and you won’t have to worry about any security issues.
What Is a Crypto asset
The IRS defines a crypto asset as “property” that represents a cryptocurrency. These assets include things like stocks, bonds, derivatives, and other financial instruments. They are considered property because they represent a form of digital currency.
Capital Gains Tax on Cryptocurrencies
Although there are no regulations or laws that prevent crypto investors from selling their crypto assets, there are some important things that crypto investors should keep in mind when determining whether or not to sell their crypto assets.
First, the IRS has indicated that the capital gains tax rate on crypto assets is at the same level as capital gains taxes imposed on other properties.
However, crypto investors may be able to avoid paying taxes on their crypto assets by claiming that the crypto assets are a hobby. Under this scenario, crypto assets are not considered “property” and are therefore exempt from taxation.
How to pay tax on crypto
In most cases, you can avoid paying taxes on crypto by making use of certain strategies. For example, if you’re trading your cryptos, you can use margin trading to lower your risks and increase your profit margins.
Another strategy you can use is called a “crypto wallet.” Basically, you can create a special wallet to store your digital currencies. Then, you can move your money into it and use it as if it were your bank account.
The downside of crypto wallets is that they’re not regulated by the government. So, if your crypto holdings suddenly drop, there’s no guarantee that you will get them back.
The same thing applies to the exchanges. Because they’re unregulated, they can often charge higher fees and commissions.
This was a quick overview of the taxation of cryptocurrency. Now, you must be clear that this is only the taxation of cryptocurrencies. There is no comprehensive list of all the forms of taxation in other countries. There are many countries that have not imposed any form of taxation on cryptocurrencies.