Cryptocurrency Basics - Crypto to Crypto Tax

Cryptocurrency Basics - Crypto to Crypto Tax

The constant back and forth in regulations for crypto to crypto tax in different countries can make it easy to get confused with cryptocurrencies. Simply put, a cryptocurrency is a relatively recently developed medium of exchange based on the internet. Its most noteworthy characteristic is that it does not report to a central body governing it, unlike national currencies such as dollars and pounds. Cryptocurrencies run on Blockchain technology.

Cryptocurrency, Crypto Tax, Blockchain technology, Crypto in India, Bitcoin Taxes, Libra Tax, lifestyle
Cryptocurrency Basics - Crypto to Crypto Tax

Blockchains have thousands, if not millions of computer systems in their networks that possess a copy of the ledger in their storage. It is practically impossible to breach Blockchain security due to it's level of sophistication.

Unlike traditional data centers that can be rendered useless by several factors, including connectivity issues, poor weather conditions, and in some places, political pressure, Blockchains are almost non-vulnerable.

In traditional systems and databases, an individual has the liberty of modifying databases. This is not the case with Blockchain databases as Blockchain systems need the consensus of the majority of the systems in their networks to make the required changes.

The sheer potential of Blockchain technology has lead the companies and new startups to invest in it in a big way. Given the ground-breaking quality of Blockchain technology, it is vital to understand some of the basics of cryptocurrencies — everything from Crypto to crypto tax.

A cryptocurrency is secure because of the complex cryptographic functions that need to be solved to access them. These prevent counterfeiting and double-spending. Cryptocurrencies are utterly immune to Government interference and manipulation as a central authority does not govern them.

Crypto to Crypto Tax in the US

According to the IRS, it is compulsory to report all Bitcoin transactions, irrespective of their value. This implies that every American taxpayer will have to keep a record of all transactions done via Bitcoins as they regardless of the type.

It is important to keep in mind that Bitcoins are considered assets, not currency. This means that simple day to day transactions like shop with bitcoin online at supermarket, for example, will be subject to capital gains tax. Your capital gains tax can be short term or long term depending on how long you have been holding your bitcoin.

When is your Crypto Taxable?

● When you sell Bitcoins mined personally to a third party.
 When you sell Bitcoins that you've bought from someone, to a third party.
 When you use the Bitcoins, you have mined to purchase goods or services.
● When you use Bitcoins bought from someone, to purchase goods or services.

If you hold Bitcoins for less than a year before sale or exchange, you will have to pay a short-term capital tax, which is equal to the regular income tax rate.

However, if you hold Bitcoins for more than one year, your Bitcoins will be subject to Long-term capital gains tax. 

In the United States, people in the 10%-15% income tax rate bracket, owe 0% Long-term capital tax, people in the 25%-35% income tax bracket pay 15 %, and those in the 39.6% tax bracket pay 20% Long-term capital gains tax.

Therefore, individuals end up paying taxes at a rate that is lower than their income, if they happen to have held Bitcoins for more than a year.

Crypto in India

Cryptocurrency, Crypto Tax, Blockchain technology, Crypto in India, Bitcoin Taxes, Libra Tax, lifestyle
Crypto in India

The regulations for Crypto to crypto tax in India have always been amorphous. This is primarily because the RBI doesn't seem to support cryptocurrencies, to begin with. The severe lack of clarity of rules for the same is a clear testament to this.

The Government seems to have taken the RBI's side on the matter and proposed a ban on cryptocurrencies and related activities. The inter-ministerial committee (IMC) claims to have made this proposition for the following reasons:-

●Cryptocurrencies possess no intrinsic value and they lack all the attributes of a currency.

 All the cryptocurrencies are entirely private enterprises as non-sovereigns and have created them.

 Cryptocurrencies don not match the vital characteristics of currency and hence cannot serve the purpose of money. 

●Cryptocurrencies have demonstrated extreme fluctuations in value since the beginning.

The proposal of this ban on cryptocurrency and declaring crypto-related activities a criminal act has resulted in the termination of numerous crypto-related businesses. The future certainly seems bleak for crypto enthusiasts and private companies alike. That said, new crypto laws are expected to be introduced in the parliament's winter session.

Crypto Tax Tools 
We can't talk about everything from Crypto to crypto tax without mentioning crypto tax tools. Filing taxes for cryptocurrencies is a tedious task, and it is what prevents people from investing in cryptocurrencies.

With the rapid increase in the number of cryptocurrencies is the rise in the number of crypto tax tools and software. These tools prove to be an integral part of crypto trading, given how crypto users are required to maintain a list of all transactions and report their taxes. Following are some tools you can use:

Zenledger is known for making the lives of crypto traders easy. Investors can import their transaction data and history and calculate their capital gains.

Bitcoin Taxes
This software allows its traders to import their cryptocurrency transaction information from the past year from a selection of well-known cryptocurrency exchanges.

Libra Tax
Libra Tax is a universal tool that analyzes the client's crypto-related activities and in turn, estimates their capital gains (or losses). Libra Tax is connected to several cryptocurrency exchanges like Coinbase and Bitstamp.

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