Annual filing time in the US is coming soon though the date has been extended to 17th May, 2021. But this year taxpayers would be required to make disclosure of their crypto dealings as well.
It is therefore mandatory for every taxpayer in the US to align his or her records if he or she had done any crypto dealings. Crypto dealings and ownership of digital assets have been defined as taxable items and IRS is going to collect the tax. The tax will be collected under the head of “capital gain tax”, also known as CGT.
Earlier annual filing forms have been amended to incorporate the crypto column. So it is important that everyone should be able to fill the forms accordingly. In order to help the general masses, Bitcoin.com has inaugurated a program that can be helpful how to provide required information.
Cryptotaxcalculator’s CEO, Shane Brunette, had a piece of advice for the filers. He had explained that holding stocks is considered CGT because they are capable of earning profits for the stockholder. This aspect of “positive return” is called CGT and tax authorities are entitled to collect tax against CGT. Similarly, he explained that holding digital assets is like stocks and therefore liable to tax under CGT.
Brunette continued to explain that CGT is earned when trade is taking place between crypto to crypto. However, crypto transactions for example reward points staking and airdrops are regarded as net income. He stated that the filer would be allowed to adjust capital losses only to the tune of US$ 3,000. But this option will be available to the filer, if the filer had earned income through digital assets.
As per the explanation of Brunette, conversion of digital assets into fiat or into another crypto would fall under CGT. Similarly, if the filer had utilized digital assets to acquire any goods or obtain any services, they too can be classified as CGT. However, the tax levy will be determined by IRS depending on how long the filer had been holding the crypto assets.
There are different tax rates for individuals holding crypto assets for a short-term or long-term basis. For instance, if someone had held crypto for less than a year, CGT will be collected @ equivalent to filer’s income. However, those who had held crypto-assets for more than a year, they shall be liable to low tax rates.
However, there is a distinction between which types of crypto transactions can be termed as CGT. In fact not every crypto transaction is liable to tax nor do they fall under the scope and ambit of CGT. For instance, if the filer had engaged in the transaction relating to Decentralized Finance, then they cannot be regarded as CGT. In fact they will fall within the ambit of income earned.