Good Morning Steemians! I hope you are doing well today and thank you for checking out this post. Today, I want to cover a topic that will become increasingly hot as tax time nears, crypto taxes. It is a reality we have to face, like it or not. I am no expert on this but I will cover what I have researched and I hope it helps you guys.
~NOTE: THIS APPLIES TO US CITIZENS~
Defining terms
First and foremost, we have to understand the lingo. Below you will find terms we will be using and the definitions of those terms.
Like-kind transaction - Also known as a 10.31, a like-kind transaction is a tax deferred exchange that allows for the disposal of an asset and the acquisition of another similar asset without generating a tax liability from the sale of the first asset. This can include the exchange of one business for another or one real estate investment property for another property. An 8824 form must be filed with the IRS detailing the terms of the deal.
Basis - This is the amount you paid to acquire an asset. This also includes the fees associated with the purchase.
Capital Asset - A capital asset is, for lack of a better explanation, something you own. Your car, a computer, a house and now, your cryptocurrency.
Short term gain - This is the realized gain of value on asset which you possessed for equal to or less than 1 year.
Long term gain - This is the realized gain of value on an asset which you possessed for more than 1 year.
Realized gain - A realized gain results from selling an asset at a price higher than the original purchase price. It occurs when an asset is sold at a level that exceeds its book value cost. This also applies when you buy something with a capital asset.
Unrealized gain - An unrealized gain is a profit that exists on paper, resulting from an investment. It is a profitable position that has yet to be sold in return for cash, such as a stock position that has increased in capital gains but still remains open.
These are the main terms you might not know. I didn't know anything about this when I started so there you have it. Hopefully these definitions make sense.
Brackets and percentages
If a realized gain is short term, no matter the bracket you are in, it is considered income and is taxed just like income. your income taxes obviously vary person to person so I will leave you to figure out your tax rates, but keep in mind this is how it is taxed.
If you are in the 10-15% tax bracket you pay 0% on your long term gains. This is definitely something to keep in mind, it could save you money in the long run. If you have held a chunk of coin for almost a year and you are ready to sell, you might want to let that full 365 days play out so that you will not be taxed on the gain. Now, if your tax bracket is between 25% and 35% you will be paying 15% on a long term realized gain. Slightly more, but still not that bad in my opinion. Finally, if you are in the 39.6% bracket, it looks like you will pay the highest rates at 20%. Please do your own due diligence, but this is what I have found.
Keep in mind these taxes apply to the total GAIN amount, not your basis. The initial price you paid including the fees is NOT added into the gain. If you are including that you are hurting yourself because you are claiming higher gains than you are actually seeing.
Mining
I know this applies to cloud mining contracts, and I am pretty certain that it works the same with mining at home. If you are mining, all crypto you gain is considered income. Take a look at your federal income tax bracket and that is the amount, in taxes, you will need to pay on your crypto mining gains. This is pretty simple, so you guys mining do not have to stress to much over this. However, I will go over a few things later in the post that miner's should consider.
Like-kind transactions/exchanges
If you purchase a crypto, with another crypto, that would presumably be a like-kind exchange. This would mean that it is not a realized gain/loss it is simply an asset change. Well, the government has different ideas on this and they want to change it. This means every time you trade crypto for crypto, it is a realization that you will need to keep documented. I am not sure when that will become mandatory, but keep it in mind.
First in, first out
This is pretty self-explanatory. Let's say you buy a bitcoin on January 1st, and then a few more on Feb 17th the following month. Now you have lets say 3 bitcoin, 1 from January and 2 from February. If you sell a bitcoin in March, you will be selling the bitcoin you bought in January, so those are the numbers you need to look at to see what your gains/loss/taxes would be. This makes it a little bit confusing in my opinion but that is just the way the cookie crumbles.
Organization
In my opinion, you should keep a spreadsheet of EVERYTHING you do the in the crypto space. For every transaction you make you should keep logs of the date, time, amount spent, amount received, costs, fees, and wallets. Basically make it as EASY as you can for yourself when it comes tax time, you will not be sorry for it though it might be meticulous.
If you are mining and trading you might want to keep separate wallets since they are taxed differently under different categories.
Write off's
If you are a miner, keep track of all your hardware and software expenses. I am sure you can write these things off. Not only that but if you guys are buying laptops or maybe more monitors to follow the market, those might be write off's as well. Basically, try to save yourself a much money as you can. This, again, is something you will not regret in the long run. Make sure to keep all of your receipts.
Final thought
Listen guys, I know the entire point of crypto is to keep your money to yourself and keep greedy hands out of it. However, if we do not play by the rules this entire operation could be shut down in the US, or at absolute least you will be find out of whatever you made. The IRS does not play games, my mother in law works with them and I can assure you they care about crypto.
Please do your own research and feel free to let me know if I am wrong about anything, I use criticism as a learning and self-bettering tool. I hope you guys are all super successful in your crypto endeavors and if you found any value in this post a minnow would appreciate support via the form of upvotes, resteems or even replies!