Do You Have to Pay Taxes on Bitcoin?
This past fall, the IRS sent letters to over 10,000 cryptocurrency owners who may have neglected to pay taxes on the virtual investments or have failed to report income and pay taxes on cryptocurrency transactions.
Some cryptocurrency investors might not be aware of these tax implications when they initially invested in cryptocurrencies such as Bitcoin.
The IRS treats cryptocurrency similar to property for tax reporting purposes: the sale or exchange of tokens is a taxable event.
Most trades count as short-term capital gains, which can be taxed at as high as 39% depending on income bracket. Those who hold bitcoin for more than a year and then sell it, however, are only liable for a long-term capital gains tax, which is levied at a significantly lower rate of 15% to 23.8%.
Cryptocurrency Investing the Tax-Advantaged Way
Like stocks or bonds, any gain or loss from the sale or exchange is subject to short-term or long-term gains tax… unless it’s in an IRA.
If all rules and regulations are followed, IRA funds are either tax-free or tax-deferred depending on the type of self-directed account you’re using to invest. In terms of holding cryptocurrency in an IRA, the need to track individual transactions for tax reporting is eliminated.
With a self-directed Traditional IRA or self-directed Roth IRA at Equity Trust, cryptocurrency investors have the ability to invest in eight popular coins, including Bitcoin and Ethereum, within their tax-advantaged account through the Digital Asset Platform.
Were you one of the 10,000 cryptocurrency owners who received a letter from the IRS?
Learn more about how holding your crypto in a self-directed IRA might be the tax-advantaged option to potentially help eliminate or defer taxes on your coins.
Prior to making any investment decisions, please consult with the appropriate legal, tax, and/or investment professionals for advice. As a self-directed IRA custodian, Equity Trust Company will not provide investment advice or risk assessment of any investment. The digital currency market may experience a high degree of volatility and clients should consult with an investment professional before any investment is made.
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