Cryptocurrency is undoubtedly an ongoing modern revolution, but we still don’t know its future. However, people’s interest in crypto is skyrocketing due to the in-built security of the system, and we need to take it seriously.
According to Karla Dennis, one of America’s finest tax strategists and tax advisors, the most important thing at the moment is to educate people about cryptocurrency.
People treat investing in crypto as an easy way of earning money while not realizing the incredible complications associated with such investments and the complexity of the currency itself.
As an accomplished tax advisor, Karla believes the tax implications of cryptocurrency cannot be emphasized enough.
What is Cryptocurrency?
Let’s give you a short overview of what cryptocurrency is. It is a decentralized, encrypted digital asset recorded on a blockchain that you can use to hire services and buy goods in much the same way as traditional currency.
That’s why crypto transactions often have the same consequences as normal transactions, which most people don’t realize.
Tax Implications of Cryptocurrency
Karla Dennis emphasizes that people should be aware of the tax consequences of cryptocurrency because the IRS regards it as property. According to Karla Dennis, the following are some of the most important tax implications of cryptocurrency everyone should know:
- Remember that investing in crypto is not totally free and has tax consequences. The income you earn through investing in cryptocurrency is regarded as ordinary income by the IRS. When you invest in crypto, you have to immediately start tracking your costs basis, i.e., how much you put in and bought.
- You, the crypto investor, are responsible for keeping up with the transactions.
- Even if you lose money on your crypto investment, you may still have to face certain tax consequences.
When is Cryptocurrency Taxable?
Now that you know what crypto is and its tax implications, you need to know under which situations crypto is taxed and under which it isn’t.
According to Karla Dennis, buying crypto does not cause a taxable event. Still, the minute you do the following, you have a taxable event that will require you to report the item on your tax return:
- Exchanging one crypto coin for another means you just had a taxable sale.
- Purchasing something with your cryptocurrency means you just had a taxable sale.
- Receiving cryptocurrency as payment means you are engaged in a taxable event.
- Converting your crypto to cash means engaging in a taxable event
This is just a quick summary of the key points to be aware of regarding crypto. However, crypto is very complicated, and you should definitely seek professional help for crypto-related taxes.
Please get in touch with Karla Dennis and Associates, Inc. for further advice if you have any specific questions regarding your crypto transaction.
Two Most Important Things to Remember about Crypto Currency
1.Report all your taxable crypto transactions, and do not try to outsmart the IRS.
2.Do not assume that just because you have a decentralized wallet, the IRS will not know about your crypto transactions. Trying to hide your taxable income (that came from cryptocurrency-related activities) from the IRS is a serious crime.
How Can Karla Dennis and Associates, Inc. Help You?
Karla’s firm helps clients by educating them on when their crypto transactions are taxable and making sure they report all their taxable transactions. The more you educate yourself about cryptocurrency, the more likely you will make smarter decisions.
Suppose you have been involved in some cryptocurrency-related activities and do not know what tax consequences you might face. In that case, Karla’s firm can help you not only with finding that out for you but also file your tax returns accordingly.