Are Crypto Wallets Taxable? Crypto Tax Questions

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Crypto has been all over the news lately. The value of Litecoin, Ethereum, Bitcoin and other crypto-assets is constantly fluctuating.

But some crypto investors and traders are wondering if they need to pay taxes on their cryptocurrency gains or not.

In this blog post, we are going to provide answers to ” Are Crypto Wallets Taxable” and provide answers to other related questions. And towards the end of the blog post is the FAQ section.

Are Crypto Wallets Taxable? Crypto Tax Questions

Crypto wallets are often considered to be taxable property. However, because of the lack of clarity on whether is a currency or asset, it can be difficult for taxpayers to declare their crypto holdings.

In summary, it can be said that your crypto assets are taxable in the same way as any other asset your own like stocks and gold. But there are circumstances outside of buying, trading and selling – whether through mining, staking, airdrop that makes you liable for income taxes on the US dollar value of your earnings.

That is for every purchase of goods and services carried out through crypto, trading of one cryptocurrency to another, earning of crypto as income, and trade of crypto current to fiat currency like US Dollars, all those are subjected to capital gain taxes.

Circumstances When You Are Bound Not To Pay Taxes On Your Crypto Assets

With all IRS said on virtual currency guidance, there are situations when you won’t trigger any taxable events no matter the quantity of crypto you have, hence you’ll not have to report any cryptocurrency taxes.

  • You are not required to report crypto taxes when you buy and hold crypto.
  • Paying taxes is not if all you do is move your crypto assets from one wallet to another wallet you own.

Tips On How To Calculate Your Crypto Taxes Without Hiring a Pro

Accounting for tax returns of your capital gains and losses from each of your trades, and crypto sells as crypto enthusiasts is relatively easy, you simply need to make use of the formula below:

  • Cost Basis – Fair Market Value = Capital Gain/Loss

What is fair market value?

The definition of fair market value is the price that a person would pay for an item in a competitive and open market. In other words, it’s what something is worth. Some people think they know what something is worth because they have seen it go for a certain price in their local area or at auction houses.

But the truth is, there are no set prices when it comes to art. It all depends on who wants to buy and sell them at any given time with how much information about the piece is available online.

What Is Cost Basis?

Cost basis is the original purchase price of an investment, adjusted for certain events that occur after the initial purchase. For example, if you buy a coin for $100 and then sell it 2 years later at $125, your cost basis would be $100.

If you bought the same coin in-between those two dates for say $110, your cost basis would be $$110. If instead of buying or selling you just owned it until today when its worth went up to 130$, your cost basis would still be 100$.

Guide On How To Report Crypto On Your Taxes

As a cryptocurrency investor, you have a lot of decisions to make. You must decide which coins to invest in and how much money to invest.

The question becomes even more difficult when it’s time for tax season because there are many ways crypto gets reported on taxes. This should give you an insight into how to go about it.

For the 90% of crypto investors who have only sold, traded and bought crypto via cryptocurrency exchange platforms. – This is considered as capital gain income and is reported as such.

And for earned cryptocurrency, which is from mining, job, earning interest rewards and staking. – They are to be reported as ordinary income.

So whenever you want to report crypto on your taxes, you must decide which of the category you fall into.

Reporting of Crypto Capital Losses and Gains

To report crypto capital gains and losses for the year, you simply need to fill the IRS Form 8949. It is worth noting that this form can also be used to report other capital assets like bonds and stocks.

Below is what Form 8949 looks like:

IRS Form 8949 for crypto

Reporting of Crypto Ordinary Income

Compare to capital losses and gains, ordinary tax income falls into categories. So the form you fill depends on specific situations.

  • Schedule C: If someone earning crypto as a business entity, that is you receive payments for a gig/job or perhaps run a mining operation; this is regarded as self-employment income and it’s filled through Schedule C.
  • Schedule B: This is the form to fill if your crypto assets are earned through staking or interest rewards for lending out your crypto coins. Simply fill the Schedule B form.
  • Schedule 1: Do you earn your cryptos through hobby income, forks and airdrops? The Schedule 1 form is the one for you.

Frequently Asked Questions and Answers

In this section are answers to common questions on ” Are Crypto Wallets Taxable”? and other related topics.

Does Crypto Wallets Report to IRS?

Crypto wallets are a digital storage space that holds your cryptocurrency, like Bitcoin. You can also use it to store other information about the crypto coin (like how much of it you own). A lot of people wonder if they need to report their crypto wallet holdings to the IRS. It turns out the answer is no- there’s nothing in U.S law that requires this! So don’t worry about reporting your assets every year- just enjoy them.

Do I Get Taxed For Converting Crypto?

If you’re wondering if you will get taxed for converting your crypto to fiat, the answer is no. A lot of people seem to think that there are taxes involved when converting from crypto to fiat, but it’s actually a misconception.

And you won’t have any trouble with getting taxed on cryptocurrency conversion as long as the funds are converted back into USD and not withdrawn in crypto form.


Conclusion

We’ve not only provided an answer to the question “Are Tax Wallets Convertible”, but also give relevant tips on how to go about reporting crypto while filling your tax form and so on.

But in case you need more relevant tips on cryptocurrency, check out our education section and do not forget to bookmark our URL.