Crypto taxation

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Assalamualaikum steemians

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How are you? Hope so everyone would be safe and sound just like me as I am also safe Alhamdulillah....

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Crypto taxation is one of the most significant and interesting topic to share that I will explain through my knowledge whatever I have along with a practical example.

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Crypto taxation is one of most critical and evolving field which encounter a lot of challenges for investors, traders, and tax authorities. As use of cryptocurrencies such a as Bitcoin, Ethereum, and others continues to develop, governments are grappling that how to tax these assets.

First step in understanding crypto taxation is for recognizing that cryptocurrencies are being treated as property, not currency, for tax purposes.It means that capital gains tax rules apply while dispose of crypto assets such as stocks or real estate.

Now there are some key considerations for crypto taxation:

Capital Gains Tax

While selling crypto tokens tax payer should always focus on calculating their profits or loss, which is major difference in between sale price and the original purchase price.While if I talk about long-term capital gains (assets held for over a year) then these are generally taxed at a low rate instead of short term profits.

Fair Market Value

Tax payers should always be very focused in determining their fair market value of their crypto tokens at time of selling or exchanging.It can be risky because of price fluctuations.

Wash Sales

Suppose there's a tax payer which is going to sell a cryptocurrency while knowing that he would be in loss and still he purchase any identical asset within 30 days then it would be considered as a wash sale and loss would be disallowed in this case.

Mining Income

Crypto mining income is commonly treated as ordinary income which further subjected in to self employment tax.

Airdrops and Forks

If I talk about airdrop and forks then tax payers can receive new crypto tokens by airdrops or forks that could be taxable as income.

Record Keeping

There should be most precise record keeping which is important for crypto tax payers because they should track trading and asset values for calculating profits and losses.

International Taxation

Crypto assets could be subjected to tax in different jurisdictions which can create complications for international level tax payers.

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Let's have a look at practical example

Here's an example of crypto taxation:

Suppose there's a person or user named Ali who purchase 1 Bitcoin for $1000 and after sometime due to some personal reasons he sells it for $1500. He has a capital benefit now you can see of $500 ($1500 - $1000). Suppose he has hold these BTC for almost one year then he would have long time profits which are taxed at a low rate and again imagine if he is holding it for less than one year then he would have a capital gain for short time period so taxed as ordinary income.Now Ali should report this transaction on Form 8949 and Schedule D for the purpose of payment of taxes at gain and same scenerio would change in a way that if he have received these BTC by mining or airdrops then he could report them as income.

In summarized way now I can say that crypto tax needs a lot of attention to detail and complete understanding of taxation rules and regulations. As the crypto market continues to develop and innovative, tax authorities and policy makers should show their adaptation for ensuring a lot of transparency, clarification, and compliance.

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Thanks

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