Capital Gains: There are More Benefits than Drawbacks
File an honest statement: there’s no reason to avoid capital gains tax. Knowing more about how this tax works will help. The government, as it has done with stocks and bonds, offers an incentive for you to keep your money within the financial markets. With cryptocurrencies being adopted by Wall Street brokers, there’s a lot of money being put into the force of liquidity. Here’s a few ways to make the most out of your liquidity during tax season.
File Your Taxes with the IRS: Cryptocurrencies are now registered as property, and this statement has become a leading cause of misconception. The IRS only defines cryptocurrency as property so that if you misfile them, you get penalized for wrongful use.
Starting with Capital Gains
Capital gains is defined as your earnings received from an investment. Let’s say that you had 10,000 dollars of cash converted into to Litecoin. Later, the market value of Litecoin falls. As long as you can present the loss within your tax returns, you have no capital gains to put a tax on. Based on this example, some losses can be filed as a deductible. Thus, capital gains tax is a benefit.
It’s best to play it safe, for if you don’t file your cryptocurrency investments, the IRS has no way of knowing what you gained. It can only know what you gained by knowing what your initial investment capital was. If you use your already taxed income to buy cryptocurrencies but didn’t file it, the IRS might place more taxes on that income you spent.
For protection, you have to subtract your capital gains from your initial investment principal.
Profiting From the “Taxable Event”
By saying that transactions are taxable events, the IRS has the right to uncover your transactions. Capital gains is defined as profit but only when it’s proven. There’s a way to make the most of it. Simply don’t convert or cash out your profits. Leaving your money in is how investors avoid and then reduce their tax rates. The longer you hold capital gains, the less your tax rate will be.