Crypto Assets Are Becoming a Popular Investment Choice
Cryptocurrencies have evolved from a niche technology with a tech-savvy userbase to a new asset class that attracts significant institutional investment. Though they are often viewed as speculative investments, studies have shown that they are more profitable than traditional markets in certain emerging countries. In Nigeria, for instance, one in three respondents said they had used or owned cryptocurrency.
Most of the attention comes from North American and European investors who are more speculative in nature. However, steady growth in other markets is proof of the practical utility of digital currencies when compared to traditional fiat currencies. At the same time, new technologies such as Ethereum and Cardano have been developed, offering powerful new ways to use cryptocurrency.
Cryptocurrency is becoming an increasingly attractive asset class for investors, and it’s important to understand the tax implications that come with it. Tax regulations are closely aligned with capital gains legislation, so it’s important to understand the laws to avoid fines and other penalties.
Taxable events include selling crypto for fiat currency, purchasing goods or services with it, exchanging one crypto for another, and gifts worth more than $15,000. Capital gains are calculated as the difference between the cash purchase price and the sale or trade price of the asset. Additionally, some cryptocurrency events are taxed as income, such as airdrops, staking, mining income, and rewards.
If you fail to report cryptocurrency transactions according to the applicable regulations, the consequences could include severe penalties such as fines and imprisonment. Avoiding the costs and labor associated with taxes on cryptocurrency is simply not worth it.
Tax regulations vary from country to country, so it’s important to research the laws before investing. In Canada, for example, the CRA considers cryptocurrencies to be commodities based on the circumstances. Their guidance is closely aligned with the IRS. Furthermore, international trade laws and taxable events may also apply.
It’s important to note that there are no taxes in the US when purchasing crypto. Taxable events include capital gains, losses, or income. This means that you can buy and hold cryptocurrency without worrying about taxes until you sell it.
