Corey Tanwir Explains How Cryptocurrency is Taxed

How Cryptocurrency is Taxed

Cryptocurrency is no longer on the rise as an investment option – it is already cemented as one. As with any other investment opportunity, though, it is vital to ensure that you know what your tax liability looks like for cryptocurrency. Although the currency itself is digital, Corey Tanwir explains your tax responsibility is very tangible.

How Does the IRS View Cryptocurrency?

The Internal Revenue Service views cryptocurrencies as assets. As a result, Corey Tanwir says it’s important to note that cryptocurrency automatically triggers tax events when cashed in or used as payment. Whenever you experience a gain in your investment, whether that gain is a result of a sale, exchange, or crypto that has increased in value, you need to pay tax on that gain.

Tanwir provides an example for clarity: you buy 1 BTC at $4,000 and sell it five months later at $6,000. In this case, you would owe tax on a gain of $2,000. The tax you owe on this amount will be calculated at the short-term capital gains tax rate. If you hold a profit on the sale of an asset held for less than 12 months, that will be taxed at your usual tax rate. Right now, that rate is between 0% and 37%, depending on your income.

If, however, that same trade occurred a year or more after the crypto purchase, you would, instead, owe long-term capital gains taxes. This rate will depend on your overall taxable income, so either 0%, 15%, or 20% currently.

He clarifies that crypto taxes work similarly to taxes on other types of property or assets. Cryptocurrency creates taxable events for you when you use it and realize a gain. Therefore, the most crucial factor in understanding crypto taxes is the event that triggers the tax liability.

What is a Taxable Cryptocurrency Event?

Taxable crypto events include:

  • Swapping out cryptocurrency for government-issued currency (or Fiat)
  • Using crypto to pay for services, goods, or property
  • Swapping out one cryptocurrency for another
  • Taking possession of forked or mined cryptocurrencies

Non-taxable crypto events include:

  • Using fiat money to purchase cryptocurrency
  • Donating crypto to a tax-exempt charity or non-profit
  • Gifting cryptocurrency to a third party
  • Inter-wallet cryptocurrency transfers

Tax Reporting with Crypto

To ensure that your tax reporting is accurate, Corey Tanwir says you’ll need to be more organized during the year than someone who does not have investments. For instance, you will need to make sure that you have a record of the amount you spent and the applicable market value when you use it each time you make a cryptocurrency transaction.

You can choose between doing this manually or using a blockchain platform to help you organize and track this data. Corey Tanwir suggests platforms like CoinTracker, which provide transaction and portfolio tracking and manage your digital assets. This will make it far easier to ensure that you have accurate access to your cryptocurrency tax information.

To Top

Pin It on Pinterest

Share This