How To Calculate Crypto Gains – It’s a universal fact that paying taxes on cryptocurrencies may be challenging, whether or not it’s your first time investing in it. Although accountants may assist you with this when you submit your yearly tax returns, it will be handy to have at least a general notion of calculating crypto gains and losses.
How to Calculate Crypto Gains & Losses
Cryptocurrency is regarded as a tax asset in the US. Therefore, every time you dispose of it, you will make or lose money in the transaction.
There are four methods to get rid of your bitcoin:
- Selling it for fiat money,
- Exchanging it for another cryptocurrency,
- Using it to buy things or services
- Giving it as gifts.
Remember that any additional profits or gains from selling crypto in one of these four ways are subject to US capital gains tax. The difference in value between the times you bought and sold your bitcoin is known as a capital gain or loss.
Calculating Gains or Losses in Cryptocurrency is Comparatively Easy To Do as Follows:
Calculate your cost basis, which is the price you paid to buy your crypto asset initially, including any transaction fees. If you received bitcoin as a gift and it didn’t cost you anything to do so, your cost basis will instead be the cryptocurrency’s fair market value in USD on the day you got it.
To determine if you have a capital gain or loss, subtract your cost basis from the asset’s value on the day you sold it.
You must pay capital gains tax on any gains if you have any. You won’t pay capital gains tax if you suffer a loss, but you should still keep note of losses since you can use them to balance profits for tax purposes. To lower your tax liability, you might compare your net capital gain for the year to your capital losses.
If you have enough losses, you may write off your whole capital gain and not pay any tax since there is no maximum on the size of a capital loss you can deduct in one year in the United States. If your capital losses are more than your profits, you can deduct up to $3K in capital losses from your regular income, which would further lower your taxable income. If you still have losses, you can transfer them over to subsequent years to counteract subsequent profits.
This is why it’s crucial to understand how to calculate bitcoin gains and losses; even while it’s necessary to file taxes in the US, there may be advantages you can gain if you understand your earnings and losses.
You will pay short-term capital gains tax if you held your BTC for less than a year; this tax has a different rate than long-term capital gains tax, although your income level determines both.
What Distinguishes Realized from Unrealized Gains?
Gains on cryptocurrencies, or even on real estate, are typically not considered “realized” until the item is sold, traded, or otherwise used. This implies that if you purchased Bitcoin and have kept it instead of selling or exchanging it, you only have unrealized profits and losses.
Although calculating cryptocurrency earnings or losses is not difficult, there are still a lot of helpful online calculators you may use if you don’t want to learn how to do it yourself.