Cryptocurrencies are a relatively new phenomenon, but they’re already starting to disrupt both the financial and legal industries. One of the most important questions that people have about cryptocurrencies is whether or not they’re taxable. This can be especially confusing for those who don’t have much knowledge about digital assets, so we put together this guide to help answer some questions about cryptocurrency taxes.
Digital Assets Fall Into A Wide Variety Of Categories
The question of whether digital assets such as cryptocurrencies are taxable has become a common one. The answer is that they are not taxable in most situations, although there are some exceptions. Cryptocurrencies are not considered to be securities under the Howey Test, meaning they do not fall within the definition of “investment contracts” and therefore do not qualify as securities under federal law.
Cryptocurrencies and virtual currencies can be defined as digital assets that have value, based on the growth of their respective networks and the services they offer. These digital assets include cryptocurrencies (like Bitcoin) and virtual currencies (like Ethereum). Cryptocurrencies are decentralized, meaning they’re not controlled by any bank or government. Meanwhile, virtual currencies are also decentralized but aren’t necessarily backed by anything other than their own value in trade.
The use of cryptocurrencies and virtual currencies as a means of payment for goods and services is not uncommon. Either they can be transferred for conventional currency or used as a form of payment for products and services, both of which are options. Although the vast majority of people use cryptocurrencies for exchanging purposes, some merchants are beginning to accept them as payment for their goods and services.
The tax treatment of cryptocurrencies can vary by country and jurisdiction. The IRS has issued guidance stating that digital assets are treated as property for federal tax purposes. This means that cryptocurrency transactions may be subject to capital gains taxes or losses . However, if you’re using your digital assets to pay for goods and services, such as buying coffee at Starbucks with Bitcoin, then this is considered ordinary income rather than capital gain income.
This is a complicated question and there are many factors that can affect whether or not a transaction is taxable. However, there is one thing that is certain: if you hold digital assets as an investment or for the purpose of trading them on an exchange, then any profits made from selling those assets will be considered capital gains or losses by the IRS.