Cryptocurrency is the fastest growing industry on the planet, with a market cap of more than $500 billion and over 1,500 cryptocurrencies. It’s been around since 2009 but has skyrocketed recently due to Bitcoin becoming mainstream. However, there is still a lot of confusion when it comes to taxation and regulation in the USA.
This article will provide an overview on how crypto tax works for those living in America and what people need to know about these regulations before buying their first bitcoin or altcoin. You’ll also learn how the government views this new asset class and why crypto taxes are so important for everyone who plans on investing or trading in crypto assets.
Cryptocurrency Taxes In USA (A Crypto Tax Guide)
Every new technology that is introduced to the market needs to be regulated and even the world of cryptocurrency is no exception. With no central authority or government backing any crypto coin or token, cryptocurrencies are instead regulated by the SEC (Securities & Exchange Commission). The ICO (initial coin offering) is also regulated by FINRA, which stands for Financial Industry Regulatory Authority and is an independent agency that regulates brokers and dealers in securities in the United States.
Since there’s no governing body when it comes to blockchain-based assets, cryptocurrency falls within a grey area where it’s not considered a currency, but also not a security. This means that each state in the USA has their own cryptocurrency tax regulations.
Before we get into the specifics of cryptocurrency taxes in the USA, it’s important to note that you must report your capital gains to the IRS if you have a profit over $600. The tax regulation system splits every year into two categories: taxable and non-taxable (capital loss).
Crypto Taxes In USA & AUD Tax Requirements
Like we said earlier, every state has different regulations when it comes to tax season. For example, if you live in New York or California, you’ll have to pay for taxes on any crypto assets that are worth more than $10. Even if your profits were great and the value of your cryptocurrency increased throughout the year, remember that capital gains tax is only applied to assets that are held over a year. This means that you’ll only have to pay taxes on your crypto profits if you’ve held your coins over a longer period of time.
But what about people who are constantly trading? What is the tax treatment for active crypto traders? This group of crypto investors is considered non-capital gain taxpayers and will only be taxed on their gain (if any) if they sell their coins after holding them for less than a year. The same rules apply to this group as the ones we discussed earlier.
However, if a person is deemed an active trader, they’ll be taxed at the short-term rate. While capital gain taxes are only applied to assets that were held for over a year, short-term capital gains taxes are applied to assets that were sold less than a year after the purchase date.
The good news is that there is no net investment income tax on crypto assets held by an individual: even though you have to pay taxes when you sell your crypto holdings, there are no further taxes involved if you move this capital into another crypto investment or asset class.
If you’re an active trader, it’s highly recommended that you use Binocs which is a crypto portfolio tracker tool for crypto investors. Binocs automatically syncs your trades with all exchanges so that when tax season comes around, filling out your taxes will be an easy process. For more information on Binocs , visit their official website.