Taxes are something every crypto investor is worried about at the end of the tax year. You have to keep track of all the crypto investments and transactions and file your tax report accurately. For organizations operating at a large scale paying hefty taxes to the IRS is also a cause of concern. How do these organizations pay taxes to the IRS?
Well in Florida paying business taxes is about to be changed forever. Florida’s governor, Ron DeSantis has taken steps for a business to pay their taxes in Bitcoin and other cryptocurrencies. A few months back DeSantis asked the state agencies to figure out a way for businesses who want to pay taxes in digital assets to Florida state. He also added that Florida is willing to accept crypto as tax payment and they are working on it.
However, DeSantis is skeptical when it comes to central bank digital currency. While he accepted decentralized digital currencies such as Bitcoin, he warned about some people discussing the possibility of converting USD into a digital currency.
In DeSantis’ opinion, there are a lot of hazards if it is centrally controlled. Also, he is worried about the amount of power some in the central authority would hold if they stop the access to purchasing certain goods.
Even Jared Polis, the Governor of Colorado said that his state is ready to accept cryptocurrencies as taxes. However, there’s a catch. The crypto taxes would be converted to fiat currency first. Even Arizona and Wyoming have similar plans.
Not only this, Florida’s politicians in a few cities are pro-crypto. Francis Suarez, the Mayor of Miami teased the idea of distributing Bitcoin yield to the residents of the city apparently with the help of CityCoins. Suarez has also introduced the idea of city employees accepting their paychecks in Bitcoin.
So, in the midst of all this, one must ask how is crypto taxed in the US.
Even though cryptocurrencies were introduced as a medium of exchange, the IRS looks at them as property, not a currency. Similar to stocks, bonds, or real estate, you have to report capital gains and losses and pay appropriate crypto taxes. The tax rates are based on the duration of the property held.
Short-Term Capital Gains Tax
It means if you sell the cryptocurrency within a year of buying it, you have to pay short-term capital gains tax. It is usually higher than the long-term capital gains tax.
Long-Term Capital Gains Tax
If you hold your crypto tokens for more than a year and then sell it, you have to pay long-term capital gains tax. Holding the tokens for more than a year is usually recommended for long-term investors as the tax implications are in their favor.
This is a brief version of how is crypto taxed in the US.
Reporting Taxes Made Easy
As we mentioned in the beginning, reporting taxes can be stressful. You have to maintain all the records of your transactions, and calculate the cost basis, fair market value, and gains and losses.
What if you could do it with a few clicks? And that’s exactly what ZenLedger, a crypto tax software offers. As soon as you import all your crypto trading history, the platform automatically calculates the cost basis, fair market value, and gains and losses. And to ease your discomfort, it generates all your tax forms too. You just have to review them and file them.
And that’s it. Your taxes are done.
To Conclude
Florida is taking an innovative step toward taxes. Accepting taxes with Bitcoin and other cryptocurrencies will definitely revolutionize the taxation space. Additionally, other states are also following the footsteps of Florida and adopting this business tax accepting method.
FAQs
1. Do you have to pay taxes on cryptocurrency in the US?
Yes, you have to pay taxes on cryptocurrency in the US. If you sell the cryptocurrency within a year of buying it, you have to pay short-term capital gains tax. It is usually higher than the long-term capital gains tax. If you hold your crypto tokens for more than a year and then sell it, you have to pay long-term capital gains tax.
2. What is the US tax rate on cryptocurrency?
If you sell your tokens after a year of buying them, you have to pay long-term capital gains tax, which ranges from 0 to 20 percent. In case you have to pay short-term capital gains tax, it is usually 37 percent.
3. How do I avoid crypto tax?
You should not avoid paying the tax deliberately because the IRS knows about all your transactions. However, you save some taxes by using these tips.
- Gifting virtual currency to someone doesn’t create a taxable event. However, keep the exemption amount in mind.
- Transferring the tokens is not a taxable event. If you transfer them to another wallet, exchange, or account, it is not considered a taxable event.
- Buying crypto tokens with USD is not a taxable event. You have to pay taxes only when you sell.
- If you receive tokens in a hard fork, you don’t have to pay taxes on it.