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With respect to cryptocurrency tax myths, there are several myths that crypto enthusiasts should know
With a number of people adopting cryptocurrencies as a means of financial transactions, it is imperative that it is going to becomes an alternative economic system. However, the uncertainty and volatility which comes with the crypto market have put lawmakers and regulators on caution. There is a huge misconception that cryptocurrencies are not taxable. Crypto trading hinges on the fact that it is not taxable and hence there is an unhindered opportunity to make easy money. This very misconception can make crypto-traders land in trouble with lawmakers. And moreover, there are many countries where taxation laws are obscure. The United States IRS, earlier laid some rules for trading in cryptocurrencies, but many other cryptocurrency tax myths prevent IRS from laying out clear rules to track malpractices. With respect to cryptocurrency tax myths, there are several myths that crypto enthusiasts should be aware of. They might end up incurring losses if they surround themselves with misinformation pertaining to crypto-tax.
Major digital assets like Bitcoin and Ethereum have grown exponentially over the years in the crypto market. The humongous growth encouraged people to resort to money laundering using cryptocurrency. Of late, as regulations are in place, cryptocurrency transactions have become transparent. However, due to the prevalence of some cryptocurrency tax myths, investors are left confused with respect to following the rule of the land. Here are some of the most popular cryptocurrency tax myths that investors should know about.
Cryptocurrency Tax Myths simplified:
Firstly, there are several investors who perceive that crypto compensation is not taxable. This is quite a misconception. If investors receive payment for their goods and services in the form of cryptocurrencies, the IRS considers the income equivalent to cash compensation, whether they are operating as an employee or independent contractor. As a result, the standard income tax rules apply, and they will have to include the Fair Market Value (FMV) of the cryptocurrency on the date they received the gross income. Coming to IRS, there is an age-old misconception regarding the fact that the IRS cannot track crypto investors since they are anonymous in nature, but the fact is the IRS can find you if they are willing enough to get to you. Even though cryptos like Bitcoin are hard to track, it is quite evident by now that it is not impossible to track. The currency is only pseudo-anonymous. The IRS has invested millions of dollars in software designed to follow crypto transactions. E-track, the IRS’s social media bloodhound, and the dark web are also being watched.
Furthermore, there is a quite popular myth that hard forks and Airdrops are not taxed. Well, that’s not true. There is no free money when it comes to the IRS, and they have made it absolutely clear that this applies to cryptocurrency. Back in 2019, the IRS issued guidance stating that airdropped units are to be included in taxpayers’ gross income as their FMW. Also, another popular misconception that needs to be debunked as soon as possible is that investors are only taxed when cashing out to fiat. But no, this is actually far from the truth. In fact, there are several types of cryptocurrency transactions that are taxable, not just cashing out to fiat currency. crypto-to-crypto swaps, staking rewards, mining and airdrops are all examples of taxable events within the crypto ecosystem that do not involve cashing out to fiat.
The most important point that all investors should follow is to treat their cryptocurrencies as property and to assume that the IRS will tax them more often than not. But if handling cryptocurrency taxations becomes too challenging, then they should choose an authentic and professional consultant who can advise them to make the big decisions that may impact the taxes.