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Do I Have to Pay Taxes Moving Between Crypto Currencies?

do i have to pay taxes moving between crypto currencies

Every year, millions of people collect their W2s and 1099s, fire up their tax software, and prepare to file. While for some this process goes smoothly, for others with more complex finances requiring careful calculation and planning it can become challenging – this is particularly true for investors holding crypto assets – cashing out your crypto for USD is certainly tax deductible, while moving between different cryptos could also be considered taxable activity.

Crypto is not backed by any government, making it more like an asset that increases in value over time than fiat currency is. Therefore, the IRS taxes cryptocurrency gains or losses similarly to stocks or real estate; transactions classified as capital gains are taxed depending on how long an investor held onto an asset before selling it; short-term gains are taxed at ordinary income rates while long-term capital gains incur lower marginal rates of taxation.

Cryptocurrency trading can be complex, and to determine whether a transaction is taxable requires keeping meticulous records of every transaction. Thankfully, there are services that can make this process simpler by tracking trading-related expenses and automatically importing transactions from exchanges and wallets into tax reports optimized specifically for IRS submission.

As well as keeping track of gains and losses, it’s also essential to document any associated fees for cryptocurrency transfers. For instance, sending crypto from your personal wallet to an exchange in order to purchase another crypto will incur fees as part of doing business and must be reported as part of your taxable gain or loss.

Transferring coins between wallets you own is also not considered a taxable event; however, moving cryptocurrency between wallets not owned by yourself will result in capital gain or loss, since you are effectively exchanging one coin for another.

If you are uncertain of the tax implications of any transaction, it’s wise to consult a qualified accountant or tax specialist. They will help calculate your cryptocurrency tax liability and select an appropriate rate based on factors like holding period, transaction type and fair market value.

Cryptocurrency taxes can be complex and daunting, yet an essential aspect of owning cryptocurrency. By keeping careful records of all trades and transfers, you can accurately report your cryptocurrency income to the IRS without overpaying taxes. With tools such as Blockpit you can keep tabs on gains and losses for filing purposes – saving both time and effort so you can focus on growing your investments instead.