Topic: How is Cryptocurrency Taxed? Here’s a Detailed Guide (Read 105 times)

The mobile phone is very bad because it is very easy to understand who is using it. The front camera takes a photo before the call. A computer with Linux or a properly configured Windows is more secure, and it is more difficult to understand who is using it.

Yeah, that's the unfortunate thing. Most people value convenience more than security until something terrible happened to them. Some companies also don't help at all by releasing products that value convenience more than security.

I wonder how they will use that kind of backdoors openly. If tax collection is their purpose, maybe they will use this backdoor to spy and then send notices instead of stealing them directly.

According to Snowden, such backdoors existed more than 10 years ago. And changing the cryptocurrency control software on the phone of any user is not difficult.
People often neglect security for the sake of convenience. Phone and exchanges are convenient, so they store their cryptocurrencies there.

That is similar to how my country regulates crypto tax. I think crypto transaction tax is still crypto tax at the end of the day, at least that's how they categorize it here if I'm not wrong. It is quite small compared to other types of taxes, don't know how long this will last though.

As far as I'm aware, Bitcoin ATM doesn't need a bank to function properly. People can buy and set up their own ATMs as long as their government allows it.

Does such a backdoor exist already? People should not store their crypto saving on a device like a phone in the first place.

In my country, there is no cryptocurrency tax. You will be prone to tax if you use centralized exchanges. These exchange companies collect tax indirectly for the government. Banks are restricted from dealing with cryptocurrencies so we don't have anything like bitcoin ATMs. But you can cheaply avoid this tax by using P2P or decentralized exchanges. So the restriction placed on banks and the lukewarm attitude of the government of my country is a blessing in disguise for me.  Mining cryptocurrencies are not banned in my country but we have no mining farm because of a lack of power supply and basic infrastructure.

And those who do not pay taxes, governments will confiscate cryptocurrencies. Although it looks impossible, many users store their coins in iPhones and laptops, which will transfer private keys.
https://dailyhodl.com/2023/06/18/balaji-srinivasan-warns-apple-microsoft-or-google-could-help-government-seize-crypto-from-citizens/
"In a new interview on the Impact Theory podcast, Balaji Srinivasan says that if G7 nations decide that digital asset seizure is allowed, then tech giants such as Apple, Microsoft and Google could lend them a hand.

According to Srinivasan, a vocal Bitcoin (BTC) bull, countries may decide to seize digital assets in the future in an attempt to recover from economic turmoil. He says tech giants could easily scan our devices to find and hand over private keys to authorities if they were ever ordered to do so."

Over the past decade, cryptocurrency has grown exponentially and has been used in different industries. It primarily functions as a medium of exchange, a unit of account, or a store of value. As a result, whether you receive, store, trade or send these digital assets, it’s important to understand the concept of cryptocurrency tax. Much the same as the Internal Revenue Service (IRS) regulations for asset classes like commodities, investing in cryptocurrencies generally incurs taxes.

Although the whole idea is still new, the IRS is working relentlessly to enforce crypto tax compliance. This guide will explain crypto taxes and highlight some taxable crypto events.

Cryptocurrency Tax
Ordinarily, cryptocurrencies are not taxable; that is, you’re not required to pay taxes for holding crypto assets. However, since these cryptocurrencies act as a medium of exchange, a store of value, a unit of account, and can be substituted for real money, the IRS treats crypto assets as property for tax purposes.

It also means that any profits generated from your cryptocurrency are taxable. Also, this concept doesn’t apply to trading cryptocurrency in a tax-free account like an individual retirement account (IRA). Establishing what falls under taxable crypto events can be a little bit daunting for some crypto users. Let’s examine more details about crypto taxable events.

What’s a taxable event?
Conventionally, a taxable event is any transaction carried out that may result in taxes liabilities to the government. Some popular examples include receiving payment of interest and selling stocks for profit. Ultimately, the evidence of any transaction is a taxable event.

The same principles apply to cryptocurrencies. Some taxable events include selling crypto for cash, converting one crypto to another, using crypto to purchase goods and much more. Listed here is a transaction that is taxable.

Cryptocurrency Taxable Events
Selling crypto for cash: Selling your crypto assets for fiat currencies will most likely incur tax. If you make a profit from the sale, you’ll owe taxes. In contrast, you can deduct that loss on your taxes if you sell at a loss.
Converting one crypto to another: Exchanging Ethereum for Bitcoin, for example, attracts crypto tax. Since it’s a sale, the IRS sees it as a taxable event.
Mining cryptocurrency: Since miners are rewarded for solving cryptographic hash functions to validate transactions, they are taxed. As a miner, it’s considered a taxable event if you profit from adding cryptocurrency transactions to a blockchain.
Spending crypto on goods: If you purchase goods such as fashion wear or foods, for example, with cryptocurrencies, you’ll likely incur taxes on the transaction.
How Do Cryptocurrency Taxes Work?
The IRS considers cryptocurrencies as assets. As such, they become taxable when they are used as payments or cash. Also, you owe taxes when you make profits on completed transactions.

For example, if you purchased 1 ETH at $1,000 and sold it at $4,000 a few weeks later, you’d owe taxes on the $3,000 profit according to the short-term capital gains tax rate. Gains realized on assets held for less than 12 months are taxable at your usual tax rate — between 0% and 37%, depending on your income.

Similarly, for long-term capital gains, depending on your overall taxable income, you would owe about 0%, 15%, or 20% for the specified tax year.

Wrapping Up
The concept of crypto tax is very much similar to the conventional tax process. Cryptocurrency transactions create taxable events when they are used to realize profits. It’s important for every crypto trader to understand how this concept works in order to stay prepared for any unforeseen rules and regulations.

​​Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.