Navigating Cryptocurrency Taxation with Janna Scott | Ep. 373
In This Article
In a world that's rapidly embracing the digital revolution, cryptocurrencies have emerged as a game-changing component of the financial landscape. But as more people buy, trade, and hold digital currencies, one question looms large: how do these transactions impact your taxes? On a recent episode of the Money Talk With Tiff podcast, host Tiffany Grant welcomed expert Janna Scott to dissect the often murky waters of cryptocurrency taxation. If you've dipped your toes into the world of crypto, or even if you're a seasoned trader, this comprehensive breakdown will empower you with the knowledge to tackle your crypto taxes with confidence.
Understanding Crypto Tax Categories
Cryptocurrency taxation isn't as straightforward as one might hope. Janna Scott clarifies that crypto income falls into three primary categories: capital gains (both short-term and long-term), and income.
Capital Gains: Short-Term vs. Long-Term
When it comes to crypto, capital gains are categorized by the holding period of the asset. Short-term gains apply to crypto assets held for under a year, while long-term gains relate to assets held for more than a year. Short-term capital gains can be significantly taxing, with rates ranging from 28% to 37%, based on one's income bracket. In contrast, long-term gains tax rates are typically more favorable at around 20%.
Cryptocurrency as Income
Income from cryptocurrencies is another area of consideration. Whether you're mining, receiving crypto as payment, or even through influencer partnerships, these transactions are treated as ordinary income and taxed according to your overall income tax bracket.
Defining Taxable Events in the Crypto Sphere
What exactly triggers a taxable event in the realm of cryptocurrency? Janna Scott provides insight into several key actions that are considered taxable events:
- Selling Crypto: Whenever you sell cryptocurrency, this transaction must be reported, and any profit is subject to capital gains tax.
- Trading Cryptos: Even swapping your Bitcoin for Ethereum is viewed as a taxable event and must be reported.
- NFT Transactions: Minting and selling NFTs are also considered capital gains events.
- Mining and Receiving Payments: Anything earned from mining or received as payment in cryptocurrency form is considered taxable income.
Keeping Accurate Records
A pressing concern for many traders is how to keep track of detailed crypto transactions. Janna emphasizes the importance of maintaining thorough records. If you've found yourself without proper documentation of trades and holdings, many exchanges now offer reports detailing capital gains and losses. However, Janna's cautionary tales of inconsistent reporting across platforms underpin the necessity of verified and reliable record-keeping solutions.
The Defi Tax Solution
Addressing the burgeoning need for reliable crypto tax solutions, Janna introduced Defi Tax. Recognizing flaws in existing platforms, Defi Tax aims to offer accurate, reliable, and audit-friendly reporting for crypto traders.
A Journey of Advocacy
Janna's commitment led her on a comprehensive research journey, consulting with the IRS, SEC, and numerous exchanges. The findings? Alarming inconsistencies in crypto tax calculations, with variances between reported earnings being as wide as 10%-35%. This advocacy not only led to meaningful discussions with government bodies but also underscored the importance of a product like Defi Tax.
Platform Features and Launch
Built by tax professionals in collaboration with PhDs and tax attorneys, Defi Tax is on the brink of launch. With a user-friendly interface and audit-proof features, this platform aspires to become a trusted resource for traders, businesses, and accountants alike. For those interested, early access can be obtained by joining their waitlist on DefiTax US.
Conclusion
The landscape of crypto taxation is not only complex but also constantly evolving. Armed with insights from the Money Talk With Tiff podcast, you are now better equipped to navigate this challenging terrain. Whether by understanding your tax obligations or leveraging tools like Defi Tax, informed steps today can steer you clear of challenges tomorrow. As the digital currency era evolves, staying educated is your best financial strategy.
FAQs on Crypto Taxes
Do I need to report every crypto transaction?
Yes, all crypto transactions, regardless of amount, must be reported to ensure compliance with tax regulations.
How can I ensure accurate crypto tax reports?
Leveraging reliable platforms that don't allow for transaction manipulation, like Defi Tax, is crucial in generating accurate reports. Always cross-reference reports where possible and maintain personal records.
Are there penalties for not reporting crypto transactions?
Yes, failing to report crypto transactions can result in penalties. Given the IRS's collaboration with exchanges for identity verification, the risk of detection is high.
Is crypto anonymous for tax purposes?
Contrary to common belief, crypto is not entirely anonymous. The IRS is able to track identities through platforms requiring KYC processes, making it important to report all earnings and trades.
