Just got into Bitcoin this year. Made like $500 bucks so far.
How does that play into tax time. Do I declare it? How much does the government Take?
*DISCLAIMER I AM NOT AN ATTORNEY OR A PROFESSIONAL IN THE TAX INDUSTRY AND THIS IS NOT ADVICE. THIS IS MERELY MY OPINION FROM HAVING PAID TAXES ON CRYPTO MYSELF MULTIPLE TIMES*
Cryptocurrencies are taxed as property. When you buy a lot of crypto you establish a cost basis for a certain amount of it plus fees. When you sell that lot of crypto, you have to pay capital gains taxes on the profits (sell value - sell fees - buy fees - buy value = profit). This seems simple, but....
- If you sell only part of a lot of crypto, you have to pay taxes on that partial lot based on the crypto's value at time of sale, but then when you sell the rest of the lot, you then have to pay taxes on the remainder of the lot at the different value of the crypto at the time of the second sale
- Crypto for crypto trades are not considered like kind of exchanges. IF you sell BTC to buy ETH, you have to pay taxes on your BTC profits then establish a new cost basis of your ETH
- If you receive crypto as a gift, as payment, or from an airdrop, that also must be taxed when you sell/use it. I do not have any solid knowledge on how you calculate the cost basis for this
- One good thing is, if you lose money on a crypto you can count it as a capital loss
There are different websites that will calculate crypto taxes for you. And you should be able to find one that exports into a format that can be imported by TurboTax (what I used last year) or some other tax software. If you buy multiple bunches of crypto then make a sale, it should in theory sell off that lot that gives you the lowest capital gains taxes.
One final note - This has been the system for paying crypto taxes for a few years. But, with the government paying so much more attention to it, I'd take a look at the IRS guidance to see if they updated it (which you should be doing every year anyway).