Why Crypto Investors Need to Learn How Their Assets Are Taxed

Why Crypto Investors Need to Learn How Their Assets Are Taxed

When cryptocurrency first came into the mainstream, some of its proponents claimed it was an asset like no other. While blockchain, cryptocurrency, and NFTs are certainly unique technologies with ever-expanding applications, it turns out that as far as being an asset, they’re not that different from other common financial products.

In a race to catch up with the nearly trillion dollars worldwide that the crypto market was worth, countries around the world have developed tax regimes that have brought cryptocurrency into the fold. 

Depending on where you live, your tax obligations for crypto should be clear. It behooves new and experienced crypto investors to learn how their assets are taxed and stay on top of their obligations.

#1 You Can Be Charged with Tax Fraud or Evasion

Failure to pay the taxes from your earnings on crypto transactions can quickly get you in trouble. The worst-case scenario is that local tax authorities could charge you with tax fraud or tax evasion. That can come with strict penalties and even include jail time.

If you’re facing an audit over unpaid crypto taxes, or you have unpaid crypto taxes and would like to pay them without sparking an audit, consider talking to Crypto Tax Lawyer law firm. They are tax lawyers who know the ins and outs of crypto and can help you correct your taxes.

#2 You Have to Pay Crypto Taxes Eventually

Crypto tax evasion is increasingly the target of international efforts to prevent tax evasion. Many countries are making arrangements with crypto exchanges and wallet companies to track crypto holdings, and it’s increasingly clear to tax authorities who owns what.

If you are audited, you will wind up having to pay the taxes you owe on cryptocurrency eventually, plus penalties and fines for being late. It’s better to know what you owe and stay on top of your obligations.

#3 Get More Accurate Results When You Incorporate Taxes

Part of being a successful investor is evaluating your returns. When you can compare results and the performance of different assets and trading strategies, you can refine your future investments and choose winning tactics. If you’re not paying taxes appropriately on crypto, you’re not getting accurate results.

One thing to watch out for is making purchases with cryptocurrency. In many places in the world, buying goods or services with cryptocurrency is considered selling or disposing of your asset, and it’s a unique taxable event.

Not only will you or the vendor you are purchasing from have to pay applicable sales taxes, but you will also likely have to pay a capital gains tax based on the market value of the cryptocurrency you are using at the time of the transaction.

In a simplified example, let’s say you purchased $2,000 worth of Bitcoin, and that investment doubled to $4,000. You decided to spend your gains and buy $2,000 worth of flight tickets  with cryptocurrency. Making that purchase would be considered the same as selling $2,000 worth of Bitcoin, and you would have to pay capital gains taxes based on the profits you earned when the value of your crypto doubled.

Investing better in crypto means understanding and paying your tax obligations. Don’t get caught up in an audit or tax evasion charges; stay on top of your crypto taxes.

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