When a person starts earning from a particular source, the first thing that comes to his mind is, is my profit taxable? In the year 2021, everyone saw a surge in trust in Cryptocurrencies. With people opting for this option of profit-making, its value is enhanced across the globe. Just in America, around ten percent of the total population traded in it during the year 2021.
Nonetheless, starting crypto trading comes with a lot of questions and the most potent one is ‘Do I need to pay taxes for what I earn through Crypto-trading? ’Well, the answer is surely not simple. The taxable feature of crypto is contingent on many features. So, if you are worried about your crypto investments you should read Bitcoin investment safety.
Basically, whether the profit you make will be taxed or not depends on the way you manage your activities!
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When Is It Not Taxable?
There are several instances when being a part of crypto trading doesn’t make it taxable for you. These include:
1. Buying Crypto With Cash
If you buy crypto with cash and hold it for some time, you are not liable to pay any kind of tax money against it. However, in case you sell it out after a while, you realize it’s gain in real terms. This is when you may have to pay some tax against it.
2. Receiving It As A Gift
If someone has gifted you Cryptocurrency, you don’t have to pay any tax against it. This is because this activity hasn’t required you to be a part of any real ‘activity’. Rather, if you opt for ‘staking’, only then you would have to pay the tax money against it.
3. Gifting It To Someone
Just like crypto is not taxable when you receive it as a gift, you don’t have to pay any gift even when you give it as a gift. You can give cryptocurrency of an amount up to fifteen thousand dollars to a receiver a year without paying any tax against it. However, any gift exceeding this limit would require you to file a tax return.
4. Self-Transferring Activity
If you maintain various crypto wallets and keep on transferring amounts from one wallet to the other, the activity is not taxable! Even if you own different accounts and make these transactions, they are not taxable. If you decide to sell off the crypto from the account, you will be taxed based on the original cost!
When Is It Taxable?
Cryptocurrency is taxable when you perform some ‘activity’ through it. For instance:
1. Crypto Mining
This is the basic activity involving crypto that makes it taxable. No matter in which country you reside, if you mine crypto, you will have to pay some tax against it. This tax will be upon the earnings you had relative to the market value, or the price at times. This is because the mining of crypto is considered self-employed, which offers profit.
2. Earning From Holding
Holding cryptocurrency for some time leads to profit generation. You will be able to earn a considerable amount of earnings and return if you hold it for a considerable amount of time.
This income that you earn is taxable! In some countries, financial organizations refer to it as interest. However, for others the IRS splits it from the interest one earns from the bank.
As a result of some marketing strategy, you may receive an airdrop. If you are lucky enough to get that, this airdrop would be taxable. While reporting your income, you are liable to add this amount as a part of your income.
4. Cryptocurrency In Exchange
In case you have received some amount of cryptocurrency in exchange for some item, you will have to report it in your taxable income while filing your taxes. This is universal for all the countries that consider cryptocurrency as a legal form of transfers and exchange
The taxable status of the cryptocurrency tends to cause a lot of misunderstandings and confusion for newbies. Nonetheless, if you hold crypto for a limited period when there is no immediate profit or loss to it, the crypto held is not taxable. Only selling it against cash would make it taxable as you realize the gains.