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Bitcoin tax guide – everything a crypto investor should know

By Guardian Nigeria
14 September 2022   |   3:08 am
Bitcoin is among the highly traded cryptocurrencies that have gained mainstream and global adoption. People can use this digital currency as a store of value and a medium of exchange. For instance, you can sell this digital money in exchange for US dollars or even exchange Bitcoin for other cryptocurrencies via a platform like Bitcode Prime However,…

Bitcoin is among the highly traded cryptocurrencies that have gained mainstream and global adoption. People can use this digital currency as a store of value and a medium of exchange. For instance, you can sell this digital money in exchange for US dollars or even exchange Bitcoin for other cryptocurrencies via a platform like Bitcode Prime

However, using this digital money has federal income tax implications. For instance, in the United States, the IRS won a case against one of the biggest exchanges known as Coinbase. The IRS considers Bitcoin holdings as property that can be taxed. So, here is everything about the various Bitcoin tax implications any established or beginner investor should know.

When to Pay Bitcoin Taxes

Most countries like the US tax this digital currency like property. The IRS treats this digital currency like a capital asset that should be taxed. So, if you sell or trade this virtual currency at a higher price than you bought it when investing, you will have to pay a tax for the capital gains. On the contrary, if this digital money depreciates and you sell or trade it at a loss, you may deduct the losses against other capital gains to reduce the taxes.

 In addition, if you own this virtual money and use it to pay for a product, the IRS views that as selling, so you will have to pay capital gains taxes. However, the capital gains taxes are eligible if the amount of this digital money you own exceeds what you initially paid when you purchased. 

More so, your digital currency starts becoming taxable when you use this digital money as a method of exchange. 

Consequently, people must be extra careful when trading this digital currency since each trade is taxable. As a result, the IRS is looking for people who make Bitcoin transactions and try to evade paying taxes. 

Also, the amount of tax you pay depends on how much capital gain or loss there has been on this digital money. Also, how long you have held the cryptocurrency and the specific tax regulations in your country indicate the amount of tax you will pay. In addition, every taxable event might create a capital gain, so you have to keep in mind the sale value and any extra fees associated with the transaction. On the contrary, the following are some of the events that are not considered taxable by the IRS:

  • When you donate this virtual money to an organization that does not get taxed
  • However, when you decide to gift this digital money to a friend or relative, you might pay a gift tax if you grant massive amounts.
  • Also, if you transfer this digital money from one wallet that you own to another that you own, you will not be required to pay taxes. 
  • Lastly, if you purchase this digital currency using traditional currencies, the purchase price is higher.

How to Report Taxes on Bitcoin

 You will incur capital gains or losses every time you transfer your ownership of this digital currency. However, to calculate your profit or loss from each transaction, you will have to assess how the price of each one of your assets changed from the time you originally received them. In other words, you can calculate your capital gains and losses by subtracting the value of this digital currency at the time of sale and the cost basis. 

The Bottom Line

In the US, UK, and Canada, the taxman views this digital money as a property that should get taxed. So, generally, the above guide has provided detailed information on everything you need to know about Bitcoin tax requirements.