Regulation
Here are the main cryptocurrency tax rules that every bitcoin investor should know
Former US President and 2024 Republican presidential candidate Donald Trump gestures as he delivers his keynote address on the third day of the Bitcoin 2024 conference in Nashville, Tennessee, July 27, 2024.
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With the price of Bitcoin poised about $70,000 Once again, experts have tax consultancy for new and experienced cryptocurrency investors.
The price of bitcoin rose to $69,982.00 on Monday before falling below $67,000according to Coin Metrics.
Although bitcoin has dropped from a record high above $73,000 as of mid-March, the price is still up more than 50% year-to-date, as investors weigh the comments from the former president Donald Trump and this week’s Federal Reserve meetings.
The price of bitcoin has dropped to a minimum of two months in early July, after the Fed’s June minutes indicated they were not yet ready to cut interest rates.
“For too long, our government has violated the fundamental rule that every bitcoiner knows by heart: never sell your bitcoin,” Trump said Saturday during his keynote speech at the Bitcoin Conference in Nashville.
“If elected, the policy of my administration, United States of America, will be to keep 100% of all bitcoin in the United States government. currently holds or will acquire in the future,” Trump said.
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Meanwhile, investors are watching for signs of a possible Democrats’ Cryptocurrency Policy Changes from the Vice President My life is nicewho entered the presidential race last week after the President Joe Biden has withdrawn. While Harris has not yet outlined a policy, some investors are hoping she will distance herself from the cryptocurrency scrutiny led by Securities and Exchange Commission Chairman Gary Gensler and Sen. Elizabeth Warren, D-Mass.
While future cryptocurrency policies and regulations are unclear, here are some key tax considerations to know, experts say.
How to Calculate Cryptocurrency Taxes
When you exchange one currency for another or sell it at a profit, it may be subject to capital gains or ordinary income taxes, depending on how long you have owned the asset.
After holding cryptocurrency for more than a year, you will be entitled to long-term capital gains of 0%, 15%, or 20%, depending on your taxable income. Higher income earners may also have to pay a additional tax of 3.8%known as the net investment income tax.
Conversely, short-term capital gains or ordinary income taxes apply to assets owned for one year or less.
Gain is the difference between the original purchase price, or “basis,” and the value of the property at the time of sale or exchange. Without establishing basis, the IRS assumes it is zero, according to Adam Markowitz, an enrolled agent with Luminary Tax Advisors in Windermere, Florida.
With a zero basis, you may mistakenly report additional capital gains to the Internal Revenue Service.
“The burden of proof is on the taxpayer to know how much they paid,” which can be difficult for investors with multiple exchanges and hundreds of transactions, especially when they don’t know what constitutes a sale, he explained.
New rules for cryptocurrency reporting
The U.S. Department of the Treasury and the IRS released in June final guide for digital asset brokers, which requires annual reporting.
Mandatory annual reporting will be phased in starting in 2026, with digital currency brokers required to cover gross sales proceeds in 2025 via Form 1099-DA. In 2027, brokers must include the cost basis for certain digital asset sales for 2026.
With limited past reporting on the basis, cryptocurrency investors can still establish a “reasonable allocation” before January 1, 2025, according to an IRS tax procedure released in June.
“Even in the current year, in 2024, when you sell tokens, it may make sense to talk to a tax professional about how to specifically identify or allocate the cost basis to those sales,” said Andrew Gordon, a tax attorney, certified public accountant and president of Gordon Law Group.