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Irrespective of your feelings on the matter, crypto could very well prove that it is here to stay.
There’s little doubt that cryptocurrency represents one wave of the future. Bitcoin and Blockchain have changed the way we see traditional paper-based money and metallic coinage. Savvy investors are getting in “on the bottom floor,” as the saying goes. Virtual currencies don’t need to feel like a gamble or a fade. Irrespective of your feelings on the matter, crypto could very well prove that it is here to stay. All kinds of cash – even the offline ones – go through cycles of boom and bust. Inflation can change everything, and so can fluctuating tax codes. What is the IRS looking for, and how can you avoid running afoul of their regulatory agents?
A Closer Look at Cryptocurrency Itself
According to federal tax rules, cryptocurrency is classified as property and not a financial asset. By the IRS’ reckoning, it is a capital asset as well. So the gains and revenue you generate from selling or trading capital assets are indeed taxable. Other types of capital gains are stocks, bonds, houses, and widgets. Recent investment innovations such as Dogecoin and Bitcoin also fall under this category. So if your income is higher than your baseline, you receive a capital gain. Conversely, if you end up losing money, that is clearly a capital loss.
Gains Help Diminish the Associated Taxes
Taxes are a certainty in life. However, taxes have been collected throughout human history via various foodstuff resources such as wheat and rice. Reducing your tax bill takes some careful planning and plenty of patience. Keep your short-term gains until they convert into long-term gains instead. This process should take about a year, so you will be richly rewarded if you can resist the urge to sell.
Wager Gains and Losses Against Each Other
Investments come with some inherent risks. They might not work out the way you wanted. Even so, be bold enough to pit prospective gains against potential losses. Subtract your crypto losses from the gains you made—additionally, factor value appreciation into your calculations. Please be advised that you’ll inevitably run into strict limits if you play it this way.
Capitalize on The Seller’s Market
Low-income years are perfectly normal. Despite the loss of revenue, your small business (or S-Corporation as well) can still stay afloat. Selling at the right time decreases the amount of taxes you have to pay. This scenario benefits you the most after you’ve retired because you won’t be bumped into a higher tax bracket.
Trust the Professionals at the Harding Group
Unlike other accounting firms, The Harding Group, located in Annapolis, MD, will never charge you for consultations and strive for open communication with our clients.
Are you interested in business advising, tax preparation, bookkeeping and accounting, payroll services, training + support for QuickBooks, or retirement planning? We have the necessary expertise and years of proven results to help.
We gladly serve clients in Annapolis, Anne Arundel County, Baltimore, Severna Park, and Columbia. If you are ready to take the stress out of tax time, contact us online or give us a call at (410) 573-9991 for a free consultation. For more tax tips, follow us on Facebook, Twitter, YouTube, and LinkedIn.