Long-term gains tend to be taxed at a reduced rate than short-term ones, typically anywhere from 0%-20%, depending on your income level.

What is capital gain?

Capital gains refer to an asset's increase in value over time. When someone sells or exchanges cryptocurrency, this may produce a capital gain that must be reported on their tax return.

Crypto gains may or may not be subject to tax depending on factors like how long an investment was held, how much income it generated, and the nature of the entity holding the investment. Short-term gains typically fall within an individual's ordinary income tax bracket, while longer-term ones could potentially qualify for a reduced rate of taxation.

Example: Carolina purchases crypto for $15,000 and holds it for two years; the difference between the purchase price and cost basis represents a long-term capital gain tax liability of approximately $16,500.

When businesses sell or purchase crypto, the IRS often treats it like property, much like stocks and mutual funds. The basis established for their sales or purchases serves to prevent double taxation from arising when businesses realize profits through selling off property that was originally bought at a lower price than what it later sold for.

If a company receives revenue from selling cryptocurrencies, it should report this income on its federal tax return using the appropriate form. However, this doesn't negate their obligation to maintain detailed records regarding trading activity so as to be compliant with the law.

Companies must file both individual and corporate income tax returns annually, as well as a capital gains tax return for any gains realized during the year. This process requires filling out multiple forms with specific information regarding trades made during that year.

What is a long-term gain?

When selling something that you have owned for more than one year, such as a house, investment, or car, typically, the profits generated from that sale are known as long-term gains and may be subject to special tax rates from the IRS.

When valuing an asset for tax purposes, the IRS takes into account both its purchase price and any applicable fees when establishing its cost basis. This method ensures an accurate assessment of tax values.

Crypto costs cannot usually be itemized like stocks and mutual funds can, but you can adjust your cost basis to account for any commissions or transaction fees paid when buying, selling, or exchanging cryptocurrency.

Hold your cryptocurrency investment for at least a year before selling, and take advantage of lower long-term capital gain tax rates to see increased savings - especially if your tax bracket is high. This could make a real difference to your bottom line!

One way to reduce tax liability on long-term investments is through tax-loss harvesting - selling other investments at a loss as an offset against your gains and losses. This strategy is known as harvesting tax losses.

Proceeds from a sale can be used to offset capital gains and up to $3,000 of ordinary income annually and carryback/roll forward net losses into subsequent years in order to further lower your tax bill.

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