Pay taxes on ethereum

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Is the Ethereum Merge a taxable event? Holding your existing ETH through the Merge does not fall into either category. While the blockchain is going through an upgrade, your Ethereum coins will continue to hold the same rights and responsibilities as before. As the IRS made clear in their cryptocurrency revenue ruling , cryptocurrency forks are only taxed when holders receive new units of crypto. What happens if I receive new units of cryptocurrency after the merge?

What taxes will I pay when I sell Ethereum? This means that whenever you sell or dispose of your upgraded ETH in the future, you trigger a capital gain tax event where you will realize a gain or loss depending on how the price of your ETH has changed since you originally received it. Is staking ETH a taxable event? As discussed in our guide to cryptocurrency staking taxes , crypto that is earned from staking is generally treated as income equal to its fair market value at the time it is received.

At this time, this is a grey area in the tax code. There is no clear guidance from the IRS or other tax authorities on this matter. As a result, investors take different approaches to reporting their ETH staking income based on their risk appetite. Crypto Taxes If You Use Cryptocurrency for Purchases If you purchase goods or services with cryptocurrency , your purchase counts as a sale of that crypto.

Crypto Taxes When You Mine Crypto If you earn cryptocurrency by mining it, or receive it as a promotion or as payment for goods or services, it counts as part of your regular taxable income. You owe tax on the entire fair market value of the crypto on the day you received it, at your regular income tax rate. The standard Form tax return now asks whether you engaged in any virtual currency transactions during the year. Keep Records of All Transactions You must keep track of all your cryptocurrency transactions, including how much you paid for crypto, how long you held it for and how much you sold it for, as well as receipts for each transaction.

While your crypto exchange may provide a B reporting your crypto transactions to both the IRS and you, it might not record the cost basis, or original amount you paid for your crypto, if you transfer coins between offline cold wallets and your account.

Tools like Koinly and Cointracker connect to exchanges and crypto wallets to track your crypto transactions and complete the forms you need to file your cryptocurrency taxes. This form logs every purchase or sale of crypto as an investment. This should include the total number of coins, the date and price you bought, the date and price you sold and your gain or loss for each transaction. Schedule D. This form summarizes your total capital gains and capital losses from all investments, including crypto.

Schedule C. If you received coins from mining, you need to disclose whether you received them as a business or as a hobby. Schedule 1. File Your Taxes If you keep records in software like Koinly or CoinTracker, you can connect them with your online tax software of choice.

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How to Report your Income As already discussed, the taxation of cryptocurrency mining is treated differently for activity classified as a business or just a hobby. Mining as a Hobby If you are from the US and mine cryptocurrency as a hobby, you should include the taxable income amount as Other income on line 21 of Form Schedule 1.

You are quite limited to deducting any expenses associated with the mining discussed more below , but expenses that are allowed should go on Schedule A Itemized Deductions. Mining as a Business If you are doing crypto mining in a more professional manner, and the activity is classified as a business, you need to report the taxable income on Schedule C Profit or Loss from Business. You are also allowed to fully deduct any expenses associated with the mining activity to offset your mining income.

The net profit is then taxed as business income and is also subject to a Deducting Expenses Same as for reporting income, any associated expenses should be reported differently depending on if the mining is classified as a business or hobby.

Expenses for Hobby Mining Crypto mining expenses should be deducted on Schedule A as itemized deductions. This is not that great because these deductions give in many cases very little tax benefits for most hobby miners. Expenses for Business Mining If you are considering doing cryptocurrency mining as a business, you have much better options for deducting related expenses.

Any ordinary and directly related expenses like a home office, start-up costs, and electricity are deductible against your income. The general rule is that you need to prove all expenses reported on Schedule C. For example, if you are deducting your electricity costs, you need to prove the actual costs directly related to the mining activity. This can be done using a separate electric meter for your mining rig.

If you earn cryptocurrency by mining it, or receive it as a promotion or as payment for goods or services, it counts as regular taxable income. You owe tax on the entire value of the crypto on the day you received it, at your regular income tax rate. Do I Owe Taxes on Cryptocurrency? Whether you owe taxes on your cryptocurrency depends on how you got it and how you use it. Did you mine cryptocurrency? In exchange for this work, you may receive payment in new crypto tokens.

Did you get crypto as a reward or an airdrop? If you receive cryptocurrency through a marketing promotion or an airdrop, it counts as taxable income.