To understand the basics of cryptocurrency tax, investors need to first understand when they really need to file taxes for cryptocurrency investments.
Buying virtual currencies with US dollars and keeping it within the exchange where they made the purchase or transferring it to their personal wallet does not mean that they are subjected to taxes.
Cryptocurrencies start becoming taxable after they use crypto as a method of exchange.
In 2014, the IRS issued a notice to clarify that virtual currency is treated as property for tax purposes,
Cryptocurrency is taxed as a capital asset and the gain or loss of every taxable event must be reported in Form 8949 of the IRS that denotes the cryptocurrency tax form.
The IRS started asking taxpayers about their virtual currency activity on their tax returns, there is no room for taxpayers to claim that they were unaware that crypto transactions need to be report.
Inflation is running at a four-decade high in the US, and the IRS has responded by making wide-ranging adjustments that affect crypto investors.
In the coming year, crypto tax regulations could become even more pervasive.
This could become a reality in the form of tightening reporting rules around DeFi, airdops, hard forks, and reporting rules for privately held wallets.
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