Data centers are prone to compromise by several factors that include connectivity issues, poor weather conditions, among others.
Blockchains, on the other hand, are nowhere nearly as vulnerable. They have thousands of computers in their networks that contain a copy of the ledger in their storage. Blockchain security breaches are virtually impossible due to the sheer level of sophistication of this technology.
Unlike in the case of conventional systems and databases, an individual cannot make any changes in Blockchain databases, as Blockchain systems need to have the consensus of the majority of the computers in their networks to make any modifications.
The potential of Blockchain technology has lead the top companies and new startups to invest huge sums of money in it. Seeing how Blockchain technology has affected the financial world, it is essential to understand some of the fundamentals of crypto. Everything from crypto to crypto tax.
An Introduction to Crypto
It is not surprising that people tend to get confused and carried away with all the information there is on the topic. The continual change in regulations for crypto to crypto tax in different countries can make it hard to grasp the basics of cryptocurrencies and understand them at their most fundamental level.
At a basic level, a cryptocurrency is a digital medium based on the internet. Its most significant characteristic is the absence of a central body that monitors transactions, which is not the case with traditional FIAT currencies like dollars and pounds.
This new payment system operates on Blockchain technology. Blockchains are used to maintain the integrity of transactional records and history.
A cryptocurrency is protected by complex cryptographic functions that stop and prevent counterfeiting and double-spending. A central authority does not govern cryptocurrencies, which is why they are immune to external influence. The most popular and highest valued cryptocurrency today is Bitcoin.
Crypto to Crypto Tax in the US
According to the Internal Revenue Service (IRS), it is mandatory to report all Bitcoin transactions, regardless of their value.
Every American taxpayer will need to maintain a record of all transactions carried out via Bitcoins regardless of the type. Several free crypto tax calculators have made Bitcoin tax reporting more straightforward.
It is crucial to keep in mind that Bitcoins are considered assets, not currency. Simple day-to-day transactions at your local supermarket, for instance, will be subject to capital gains tax. Your capital gains tax may be short-term or long-term, depending on how long you have held on to your Bitcoin.
When do you have to file Crypto taxes?
- If you sell Bitcoins that you have mined personally to a third party
- If you sell Bitcoins that you’ve purchased from someone to a third party.
- If you use the Bitcoins, you have mined to buy goods or services.
- If you use Bitcoins bought from someone, to purchase goods or services.
In case you hold your Bitcoins for less than a year before sale or exchange, you will be liable to pay a short-term capital tax, which is equal to the regular income tax rate. However, if you hold Bitcoins for over one year, your Bitcoins will be prone to Long-term capital gains tax.
In the United States, crypto traders in the 10%-15% income tax rate bracket, owe 0% Long-term capital tax, crypto traders in the 25%-35% income tax bracket pay 15 %, and those in the 39.6% tax bracket have to pay 20% Long-term capital gains tax.
Therefore, Crypto traders end up paying taxes at a rate that is lower than their income, if they happen to have held their Bitcoins for more than a year.
Crypto Tax Calculators:
These are some of the best and most popular crypto tax calculators on the market today.
TokenTax makes it very simple to handle your crypto to crypto tax needs. This crypto tax platform supports every leading exchange.
It has a tax dashboard that displays all your transactions, your total profit, and loss, your capital gains, your crypto tax liability, your mining, and much more.
It is known to be the only crypto tax platform that accurately handles margin trades from Bitmex, Deribit Bitfinex, Poloniex, FTX, etc.
You should have no problem using TokenTax in the United States, Canada, United Kingdom, Germany, Sweden, or Japan. They also cater to ex-pats and international exchange users.
CryptoTrader.tax is a crypto tax software that allows its crypto traders to calculate their capital gains or loss in no time. CryptoTrader.tax boasts a simple, user-friendly interface that helps you import your trades easily and make sure that you are not overpaying your taxes. It currently supports exchanges like Coinbase, Bittrex, Gemini, Binance, and Poloniex.
You can export your crypto tax report without any issues. However, you must be sure to include the following documents:
- Cryptocurrency Income Report
- Short & Long Term Sales Report
- IRS Form 8949
- Audit Trail Report
- End of Year Positions Report
- TurboTax Direct Import
- TaxAct Direct Import
CoinTracker is a popularly known crypto tax reporting software and crypto-asset tracker.
Its platform automatically synchronizes your asset balances and the transactions from your exchange accounts. Cointracker’s interface displays your digital assets and their associated respective trading history.
To simplify things for you as a crypto trader, it makes use of a unified dashboard and provides a performance tracker. This tracker gives you a clearer picture of your crypto investment performance over time.
Zenledger is a new, intuitive, and promising cryptocurrency tax software. It enables crypto traders to import their cryptocurrency transactions and calculate their crypto taxes.
When you import your transaction data, this crypto tax software generates a whole multitude of parameters that includes capital gains, income, donations, profit and loss statements, auto-fills tax forms, and many more.
Some of its features worth noting are Audit report, CPA access, designation, unlimited exchanges, FIFO/LIFO, crypto as income, ICOs & airdrops, Tax-loss harvesting, and FinCEN/FBAR alert.
This should serve as a brief guide to help you springboard into the world of crypto to crypto tax. These crypto tax calculators are only a few of many options on the market for you to choose from.