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OKX Chain users can now use Binocs for all their crypto tax requirements
We are excited to announce that OKX(OKC Chain) users can now sync their data on Binocs for the purpose of tax calculation.
Governments globally are formulating regulations for crypto taxations for traders and investors. And with so many different crypto trading options provided, calculating the tax on all your crypto taxations can be a difficult task. You want to ensure you’re not paying extra than your estimated tax liability but also ensure you’re not paying less than the amount required.
Binocs is your one-stop solution for all crypto taxation requirements. Users can upload their transactions from exchanges and wallets and calculate their net tax liability that needs to be paid.
About Binocs
A simple yet efficient crypto taxation solution and portfolio tracking platform.
Binocs is building cutting-edge accounting, taxation, and portfolio tracking software for all crypto transactions. Our software makes it effortless for crypto investors to comply with the latest regulations announced by the Government. Binocs cater to both B2B and B2C use cases.
Partnered with 100+ exchanges, 50+ wallets, and 20+ smart contracts, users can integrate multiple accounts on a single software and receive a comprehensive tax report. Binocs can handle various forms of transactions on the platform and can detect double-entry transactions and other errors.
Users can also track their entire varied crypto portfolio all under one platform. Whether you wish to follow your NFTs, coins, or contracts, you don’t need to keep a tab of it on different platforms. It can all happen on Binocs.
Binocs aims to bridge the gap between government regulations and investors by providing clarity, services, and solutions for all things crypto tax related.
About OKC (OKX Chain)
OKC (OKX Chain) is an EVM-compatible L1 built on Cosmos with a focus on true interoperability (IBC) and maximized performance. At high scalability, developers can build and scale with low gas fees. The OKC ecosystem and infrastructure, including the all-in-one multi-chain Web3 interface, enables a seamless experience for both developers and users.
Find out more about us at https://okx.com/okc.
How can OKC (OKX Chain) users benefit from this integration?
OKC users can stay tax compliant through Binocs’s transaction understanding capabilities and cost basis engine that calculates accurate taxes based on local regulations.
On integrating OKC with Binocs, Binocs will provide the view of their lending and borrowing positions on apps like Definer and Flux as well as liquidity positions in DEXs like OKC Swap and Cherry Swap.
How to integrate OKC (OKX Chain) with Binocs
To integrate their Metamask wallet OKC address, users just need to key in their public address after choosing the option to connect with OKC.That’s it! Once you integrate your transactions, Binocs will calculate your crypto taxes.
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Is Crypto Taxed the Same Way as Stocks? Everything you need to know about Stocks vs Crypto Taxation
What Are Stocks? and How to invest in Stocks?
A stock is a broad term that refers to any company’s ownership certificates. A share, on the other hand, refers to a company’s stock certificate. You become a shareholder if you own a share of a specific company. Stocks are mainly invested in for either dividends or capital appreciation,
Stocks are classified into two types:
1. Common stock:
Enables the investor to receive dividends and vote at shareholder meetings.
2. Preferred stock:
This type of stock entitles the owner to dividends before common stockholders. Furthermore, if a company declares bankruptcy and must liquidate its assets, preferred stockholders are prioritized over common stockholders. They cannot, however, vote in shareholder meetings.
Investing small chunks of money in a public company is what investing in stocks entails. Those small shares are known as the company’s stock, and by investing in them, you are betting on the company’s long-term growth and performance.
Investing in the stock market is a very detailed and complex topic, but when explained at a basic level, it’s just like buying chocolates (except you don’t eat those chocolates; instead, you hold or sell them until the price rises). You must first open a Demat account, which stores electronic copies of your shares before you can invest in both the primary and secondary markets. A trading account is also required when buying and selling stocks online. Following are the ways in which one can invest in the stock market:
- Invest in companies directly by purchasing their stock through a full-service broker.
- Investing in stocks is done through mutual funds.
- Investing in stocks through exchange-traded funds (ETFs), which are a type of index fund.
What is cryptocurrency? How to invest in Cryptocurrency
A cryptocurrency is a digital or virtual currency that is protected by cryptography, making counterfeiting nearly impossible. Many cryptocurrencies use blockchain technology to create decentralized networks. The fact that cryptocurrencies are generally not issued by any central authority makes them theoretically immune to government interference or manipulation. Cryptocurrencies have grown in popularity in recent years due to the high returns they can provide in a short period of time. Two of the most well-known cryptocurrencies are Bitcoin and Ethereum.
Unlike fiat currency, cryptocurrency does not exist in physical form unless the owner wishes for it to be converted into one. When you purchase a crypto token through an online exchange platform, it is saved in a digital wallet.
To invest in cryptocurrencies, you must first create an account on a cryptocurrency exchange platform. There are thousands of cryptocurrencies on the market, and a specific exchange may not support the virtual currency you wish to purchase.
Step 1) Conduct research before deciding on an exchange.
Step 2) Open an Account on the exchange
Step 3) Deposit fiat money before you can begin investing in cryptocurrencies.
Your cryptocurrency token will be stored in an exchange-managed custodial wallet. Your tokens can also be stored in a cold wallet, which is a physical device also known as a hardware wallet. Another option is to use a hot or software wallet, which is a mobile, desktop, or web-based application that stores your token online. When compared to an online wallet, a physical wallet provides greater security.
Difference Between Stocks and Cryptocurrency
Stocks are a long-standing asset class that can produce both long-term and short-term returns. Cryptocurrency is a newer financial instrument with higher price volatility and risk. While both instruments are appealing to traders and investors, cryptocurrencies are frequently viewed as a viable alternative to more traditional assets. Having said that, profitable strategies can exist in both markets. here the major difference between the two:
Point of Difference Stocks Crypto Type of Assets Physical Asset Digital Asset Nature Owning a part/entire of the public company Owning the part/entire digital currency Entrance to the Market Relatively Harder Easier, Anybody can start mining or dealing Regulated Strongly & safely regulated In its initial phase, thus lightly regulated Risk Factor Inherent but Limited & Varies High Risk Future Here to Stay Unpredictable Investment strategy Many, but long-term holding yields the best return. Fewer data is available, thus early exit at a higher price is good enough. Crypto Taxation vs Stocks Taxation
– Capital Gains are the Same
Crypto and stock capital gains are identical. According to IRS Notice 2014-21, cryptocurrency is considered property. When you hold a token as an investment, it is subject to the same capital gains tax as stocks and securities.
– Capital Losses: Crypto Offers More Frequent Tax Loss Harvesting
Crypto does provide more benefits when your portfolio crosses the ‘Red’ line. Because cryptocurrency is treated as property, the wash sale rule does not apply to it, so it will assist you in offsetting the losses with your other income. The wash sale rule forbids companies from claiming losses on sold stocks and then repurchasing “identical” stock within 30 days of disposal. There is no need to wait 30 days to harvest losses in the case of cryptocurrency.
Crypto or Stocks: What Should You Invest In?
– Stock Investing
If you want to build wealth gradually, investing in stocks may be the best option for you. We can see from decades of stock trading history that stocks are among the best ways to build wealth in the long run. Given the inherent risk, performing proper fundamental analysis in conjunction with a prudent approach to investing can produce excellent results.
– Cryptocurrency Investing
Investing in crypto is risky, but it has the potential to rapidly increase your wealth if you have knowledge about it. The volatility factor cannot be ignored, and cryptocurrency’s future is uncertain. The vast majority of financial advisors advise their clients to avoid this risky investment in order to meet their long-term financial objectives.
The Bottom Line
The article very clearly answers the hot question: is crypto better than stocks? And where should you invest? The differences are mentioned in the article and it states to you the good and bad aspects of both instruments. Investing in stocks vs crypto is like buying clothes; some like baggy and trendy, while others like form-fitting and timeless, but neither is inferior to the other. Similarly, it is your appetite, capital, and goals that will determine which is better crypto or stocks.
FAQs
1. Are crypto taxes the same as stocks?
No, stocks vs crypto taxation are totally different. According to recent reports, the government intends to tax cryptocurrency income at a flat 30% rate. Short-term capital gains on the sale of equity shares/equity-oriented mutual funds are taxed at a flat rate of 15% on the sale of equity shares/equity-oriented mutual funds. Long-term capital gains on the sale of equity shares/equity-oriented mutual funds, on the other hand, are taxed at 10% above Rs 1 lakh. There is no tax on gains up to Rs. 1 lakh.
2. Does crypto make taxes harder?
No, cryptocurrency is a type of asset that will be taxed when profited from, it’s that simple. It may not be accurate or reasonable because it is a new concept for taxation, but currently, flat tax rates on cryptocurrency may be unreasonable but make calculation and compliance fairly simple.
3. Is it better to invest in stocks or crypto?
Each to their own! Both crypto and stocks have the potential to fluctuate in value, so investing in either is risky. Whereas stocks are slightly more stable but offer fewer rewards, cryptocurrency has a reputation for abrupt and severe fluctuations in value that can occur without warning and can earn you unimaginable returns. It will be your decision to choose which is better crypto or stocks based on your requirements.
4. Is crypto tax higher than stocks?
Yes, when it comes to stocks vs crypto taxation there is a higher gap, where crypto is currently taxed at a flat 30% rate, whereas stocks are taxed based on holding period, with the highest tax rate on stocks being 20%.
5. Which is better crypto or stocks?
Both assets have their own pros and cons, but it is your inclination and future planning that will automatically show you who wins in stocks vs crypto.
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Interference of crypto taxes with PayPal Crypto Payments
How do Crypto Taxes work?
Cryptocurrencies such as bitcoin are considered property under IRS regulations. This means that any time you sell, exchange, or dispose of cryptocurrency to buy something, you are engaging in a taxable transaction. Crypto taxes will be levied on the owner of such cryptocurrency. Users will be able to “instantly convert their chosen cryptocurrency balance to fiat currency, with the certainty of value and no incremental fees,” according to the Paypal announcement.
This means that whenever a user purchases a product or service from a merchant, PayPal will convert the cryptocurrency to fiat, resulting in a tax liability for the user. The best part is that merchants will be able to accept a new payment method without having to worry about additional taxes or the complexities of cryptocurrency accounting because PayPal crypto hub will allow users to deal with PayPal crypto taxes and generate cryptocurrency on the user’s behalf while paying the merchant in fiat currency.
What is the PayPal crypto hub?
PayPal announced the launch of the PayPal crypto hub in October 2021. This new service would allow PayPal customers all over the world to buy, sell, and store cryptocurrency, spend it at any of PayPal’s 26 million merchants as well as deal with PayPal crypto tax through the hub. Users will be able to buy and sell four different cryptocurrencies through the PayPal crypto hub, including Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.
When you buy cryptocurrency with PayPal, you cannot move it off the platform like you can with traditional crypto exchanges and wallets. This is due to the fact that with PayPal crypto tax is bound to occur as you only have access to the public address of your cryptocurrency, not the private key. This means that the platform is useful for those who want to buy HODL crypto in PayPal, or even sell more frequently as the market fluctuates. However, it is of little use to investors who want to move their crypto between wallets and exchanges in order to use their crypto for other investments such as staking, lending, or DeFi protocols.
How do you report PayPal crypto taxes?
Capital gains and losses in cryptocurrency are reported to the IRS as part of your Individual Tax Return. On Schedule D of IRS Form 8949, you must list each disposal (sale or spend) as well as your net capital gains and losses. Because PayPal’s crypto assets are ‘locked’ within the platform, tax reporting for PayPal crypto is much simpler. Often these cryptocurrency platforms allow you to move your cryptocurrency between exchanges and wallets, as well as wrap coins to move them across blockchains. This makes tracking things like cost basis and subsequent capital gains and losses difficult.
However, because all of your cryptocurrency in PayPal is locked up – this isn’t an issue for those using the PayPal crypto hub, which may explain why PayPal decided to keep custody of private keys. This means that PayPal will be able to provide users with accurate 1099 forms to assist them in reporting their cryptocurrency taxes.
Example: Using bitcoin to buy a car on PayPal
John wishes to purchase a $1,500 car from a PayPal merchant. To complete the payment, John uses three Litecoins that he has in his PayPal wallet. John paid $300 for this Litecoin a few years ago, and it is now worth $1,500. When John initiates the payment, PayPal converts the three Litecoins into $1,500 (fiat currency) and transfers the funds to the merchant.
It is your responsibility to determine whether or not any taxes apply to transactions made through your Cryptocurrencies Hub. You can view your transaction history and account statements in your PayPal account to determine your PayPal crypto taxes and any required tax filings or payments. As a result, John at this taxable event must pay long-term capital gains tax on $1,200 ($1,500 – $300) at the time of the conversion. Taxes would be approximately $180 ($1,200 x 15%).
Cryptocurrency Withdrawals
It’s also worth noting that, at least initially, PayPal will not allow cryptocurrency withdrawals from your PayPal wallet to any other wallet. If a user wishes to close their PayPal crypto account, they must sell the cryptocurrency in the account, resulting in a taxable event.
FAQs
1. Can you transfer Bitcoin to PayPal?
Yes, PayPal initially prohibited such transactions, but users can now add Bitcoin to their PayPal account/wallet. You can also transfer cryptocurrency from other wallets into PayPal and to other PayPal users.
2. What are PayPal crypto fees?
The platform’s simplicity has a positive side effect: it means that paying PayPal crypto taxes or fees is simple. Each transaction will incur a fee, just like any other cryptocurrency. When you buy or sell cryptocurrency on the PayPal crypto hub, you will be charged the following fees. Meanwhile, when you spend cryptocurrency through PayPal, it converts it to USD automatically, so there are no fees for using this service.
Purchase/Sale Amount Fee $1 – $24.99 $0.50 $25 – $100 2.30% $100.01 – $200 2.00% $200.01 – $1,000 1.80% $1,000.01+ 1.50% 3. How much crypto can I buy on PayPal?
You can purchase cryptocurrency for as little as $1 or as much as $100,000 per week. The investor has to keep in mind that this will include the fees that have to be paid for specific transactions as well.
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What is Cryptocurrency Portfolio Rebalancing and what are the Different types of Portfolio Rebalancing?
What is Crypto Portfolio Rebalancing?
Crypto portfolio rebalancing is the process of realigning the asset weightings in an investment portfolio in order to rebalance risks. Rebalancing is done on a regular basis and involves buying or selling cryptocurrencies or other investments in a portfolio to achieve the desired level of risk or asset allocation.
Rebalancing a portfolio optimizes it by selling assets that have risen in value and redistributing funds to assets that have not yet risen in value. By adjusting your holdings and bringing them back to their original levels, rebalancing a portfolio calibrates your risk level. Profits are taken where necessary, and losses are stopped. It also makes room for additional profits and possibly newer assets. Remember that it’s all about profiteering, buying low, and selling high.
How does crypto portfolio rebalancing work?
Rebalancing is a relatively simple process. Consider it a more sophisticated version of the buying low and selling high strategy. The emotions and psychology of an investor can have a significant impact on buying low and selling high. Both are removed from the equation during rebalancing. So, how does rebalancing actually work? Imagine a diversified asset portfolio to better understand rebalancing. In this case, the assets will be cryptocurrencies. You will try to make such a mix of investments that will mitigate risks and will reward you with profits.
Advantages and Disadvantages of Crypto Portfolio Rebalancing
Advantages:
- Crypto portfolio rebalancing reduces your risk exposure.
- You can reduce the minimum and maximum amount of money you can win or lose by rebalancing.
- When you have enough assets, the effects of losing one are negligible in comparison to your total capital.
- If you win an excessive amount of money, you can optimize your portfolio by reallocating capital to more assets. And the more assets you have, the less risky you are.
- Actively changing allocations. Thus, to find the best coins you should always conduct a fundamental analysis and it will pan out to be a perfect strategy.
Disadvantages:
- it forces you to sell assets that are underperforming, which you then reinvest in better assets.
- Cryptocurrency portfolio rebalancing is that it only has one advantage: momentum.
- Reinvested funds are directed toward an asset that has not yet moved and is now moving – but in the wrong direction.
- Crypto portfolio rebalancing only adds value if assets that have gained value have lost value and vice versa.
- a substantial amount of money on trade fees and transaction costs is also a big issue. Some investors may be put off by frequent trades.
The most common crypto rebalancing types
Cryptocurrency portfolio rebalancing has many benefits, but it also has drawbacks. If the benefits outweigh the drawbacks, you should consider rebalancing. But how should you go about rebalancing? The section that follows contains a list of popular rebalancing strategies for your cryptocurrency needs.
Periodic
Periodic rebalancing is the most fundamental type of crypto rebalancing. Your asset allocation is adjusted on a predetermined time interval, such as every hour, day, week, or month, with periodic rebalancing. Because of cryptocurrencies’ rapid price fluctuations, this interval is typically shorter than for other asset classes. Because periodic rebalancing is so simple to grasp, it is ideal for new cryptocurrency investors. It is important to note, however, that when it is used, asset allocations are not changed, even if the portfolio is out of balance until the crypto rebalancing time comes.
Threshold
Threshold rebalancing is a rebalancing crypto strategy in which tolerance bands are applied to your holdings. An asset is assigned an allocation percentage from which it cannot deviate excessively. Allow the asset to move 10% up or down, but buy or sell it as soon as the price difference exceeds 10%. The effectiveness of threshold rebalancing is determined not only by the market but also by the threshold’s width. The outcome of your strategy is determined by whether you use a low or high-threshold strategy.
Hybrid
Hybrid rebalancing is the finest of both types, combining periodic and threshold rebalancing. An investor would adjust the portfolio allocation on a schedule as well as when the value of an asset crosses a certain threshold with this type of crypto rebalancing.
How Crypto portfolio rebalancing is done
You can simply follow the below-mentioned steps to rebalance your crypto portfolio and start your journey towards, safer, decent, and more promising profits:
Determine which type of crypto portfolio rebalancing is best.
The type and frequency of crypto portfolio rebalancing required are largely determined by the trader’s investment strategy and style. Higher-risk investments, such as volatile coins, newly launched tokens, and those with limited market capitalization, typically necessitate more frequent crypto rebalancing than a portfolio consisting of one or two stable currencies and one or two high-risk tokens. Before moving on to the initial allocation of your investment, decide which crypto portfolio rebalancing strategy best suits your unique approach and risk appetite.
Determine Your Initial Crypto Asset Allocation
Figure out the initial investment mix and balance. If you’ve already started trading, divide your current portfolio according to your risk management strategy and the assets you own. For example, an investor could put 50% of their portfolio value into a large market capitalization cryptocurrency like BTC, 20% into ETH, and the remaining 20% into two ICOs and two altcoins at 10% each.
Adjust Your Cryptocurrency Portfolio
Crypto rebalancing on a schedule using a periodic strategy, followed by buying and selling the coins or tokens required to reach your predetermined investment allocation, is relatively simple. You can also use portfolio or threshold rebalancing to rebalance crypto portfolios. Setting a percentage deviation from your allocation that you don’t want to be exceeded is what threshold rebalancing is all about. Allocations are rebalanced based on absolute changes in your percentage allocation.
Trade it Out
Purchase and sell cryptocurrency assets to return your cryptocurrency asset allocation to your original objectives. If you’re rebalancing manually without the help of crypto portfolio rebalancing tools, try to keep transactions as close together as possible. Your local tax laws govern whether or not you must record all crypto rebalancing transactions. Keeping track of all trading activity, on the other hand, is generally recommended for analysis purposes. To maintain compliance and claim capital losses or gains, rebalancing transactions must be recorded for tax purposes.
FAQs
1. Should I rebalance my crypto portfolio?
Rebalance the crypto portfolio, whether traditional or crypto, entails buying and selling assets within your portfolio in order to maintain the original asset allocation and level of risk. Because the return and benefits of crypto rebalancing are most visible in the long run, it is not a one-time-use tool and if you are someone who wants less risk, a longer investment run, and profitability then yes you should definitely go for cryptocurrency portfolio rebalancing
2. When to rebalance Bitcoin?
When an asset’s value increases faster than it should, you sell it to make room for other assets. On the negative side, it forces you to sell underperforming assets, which you then reinvest in better assets. Diversification is also introduced during crypto rebalancing.
3. Do you lose money when you rebalance?
Crypto rebalancing does not usually increase long-term investment returns. It may lower the volatility of your investment portfolio while keeping asset allocation in line with your risk tolerance.
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The ultimate guide to diversifying your Crypto Portfolio
What is crypto portfolio diversification?
Looking to diversify your cryptocurrency portfolio entails investing in a variety of cryptocurrency projects in order to reduce risk if one or more projects perform poorly. The primary reason for diversifying one’s cryptocurrency portfolio is the same as the primary reason for diversifying one’s overall portfolio. While drawing a tentative conclusion about the crypto market is nearly impossible, making the wise choice of investing in various cryptocurrencies and creating a diversified crypto portfolio keeps it impact-ready. Implementing a diversification strategy also allows you to achieve the best possible returns even when some of the components of your portfolio perform poorly.
The importance of cryptocurrency diversification is demonstrated by the fact that it lowers the risk of permanent loss if one of the assets in the crypto portfolio crashes while the other assets retain their value or experience an all-time high or profit. Overall, the various assets contribute to the portfolio’s improvement.
How to diversify your crypto portfolio?
– Type of cryptocurrency
Diversification based on the type of cryptocurrency is a common crypto diversification strategy due to its basic approach. The plan is to invest in a variety of high-performing cryptocurrencies. Different crypto projects are powered by different foundations and technologies. This allows you to choose those that correspond to your investment objective. You have the option of using privacy coins, altcoins, or tokens. When using this strategy, you must conduct research on a variety of topics, including cryptocurrency prices, historical trends, and future potential.
– Diversify by industry
Put the money in a diverse collection of coins that can be used to solve problems across multiple industries. This will aid you in mitigating the negative effects of crypto-unfriendly policies and events on your investment. Make sure you do your homework and invest in both stable and rapidly growing businesses. Overall profitability and globally competitive industries such as medicine and finance should also be considered. Keep in mind that you should not put your money into a project about which you know nothing or very little. Spend some time researching and learning about the industry before making a decision.
– Diversify by timing
Diversification of time has been around for a long time. This strategy necessitates market timing and the acquisition of crypto assets at the appropriate time. While it is impossible to eliminate market risk entirely when investing, you can increase the value of your portfolio by being selective about when and where you invest. Timing-based investment diversification is essentially an interval-based investment strategy. All you have to do is set aside specific amounts of money at specific times to invest in your chosen tokens. For this, when prices are low, it’s a good time to invest in new cryptocurrencies, and when prices are high, it’s a great time to sell and profit.
– Diversify by geography
Last but not least is another option to invest in global cryptocurrency projects. You can mix and match blockchain projects from different countries depending on your preferences and risk tolerance. Make sure that none of your funds are going to the same region or country — conduct extensive research on the performance of crypto projects in various parts of the world. This will shield your investments from regulatory risk and provide another way to balance your diverse portfolio even in volatile market conditions.
Pros and cons of diversifying a cryptocurrency portfolio
In your journey of best crypto portfolio diversification, it is important to understand the overall benefits and disadvantages that crypto diversification brings to the table. The efforts to diversify your crypto portfolio will result in something fruitful only when you understand the following:
Pros:
Diversification of a cryptocurrency portfolio is just as important, if not more so because it provides you with the following benefits:
- Handles the volatility aspects as it makes investing in it particularly risky.
- Managing and diversifying your crypto investment portfolio can help you reduce your crypto investment risk.
- A well-diversified crypto and blockchain portfolio can benefit from the sector’s growth while potentially avoiding price volatility.
- Crypto diversification strategies can help investors achieve a wide range of investment objectives, from income generation to inflation hedging to capital appreciation.
- Balances your ROI at a bigger level and increases your chances of capital gains.
Cons:
Understanding the bitterness of crypto diversification is also important when it comes to managing your crypto investments. Before deciding to diversify your crypto portfolio keep in mind the following:
- Strategies may just work on paper and in a real market crash your investments
- Crypto diversification will push you to invest more and more, just in the name of mitigating risks.
- It may lead to investing in cryptocurrencies that you are unsure of, but in order to maintain your portfolio balance, you must invest, which may have negative consequences.
Why should you diversify your crypto portfolio?
After understanding ‘how to diversify your crypto portfolio’, let’s understand why you should diversify your portfolio. The cryptocurrency market is extremely volatile, and diversification will protect you from unexpected negative market swings. As prices rise, it will also suffice and balance with cryptos that cross the red line. A well-diversified portfolio increases the chances of your cryptocurrency investment being successful. You can’t rely on a single cryptocurrency to generate high returns at this stage of the market. Diversification allows you to profit from multiple coins that are performing well at the same time.
Conclusion
Many investors in both crypto and traditional assets use crypto diversification as a fantastic risk management strategy. While it will not protect you from backwardation, it will lower your risk if one of your portfolio assets exists or has a bad run in the cryptocurrency market.
Keep in mind that investing is risky, but risks can be reduced to some extent. You can significantly reduce the impact of global slashing events on your portfolio by making smarter investments. Analyze your portfolio to see if it needs to be diversified. If it does, make the wise decision to put a successful diversification strategy in place.
FAQs
1. Why should you diversify your crypto portfolio?
Ans: You should diversify your crypto portfolio in the same way that you would a stock portfolio. The benefit of cryptocurrency diversification is that you can spread your funds out to reduce risk and volatility. If one of your investments fails, one of your others can compensate.
2. Is diversification in crypto good?
Ans: Because of the volatility in the crypto market, many investors are looking to diversify their crypto portfolio, so investing in multiple cryptocurrencies may be a good idea if you are aware of how to diversify your crypto portfolio.
3. How much should I diversify my crypto portfolio?
Ans: Crypto diversification is a tool to mitigate the risks in the market. It totally depends on you as an investor how much risk you are willing to take, the safer you want to play the more you need to understand how to diversify your crypto portfolio, implement the strategies and get yourself risk-covered.
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Do You Pay Tax When Selling Crypto?
India has no regulations regarding cryptocurrencies and non-fungible tokens (NFTs). The Reserve Bank of India (RBI) attempted to ban cryptocurrencies in 2018, but the Supreme Court overturned the attempt.
This means that cryptocurrencies are neither illegal nor strictly legal from a regulatory point of view. On the other hand, NFTs don’t seem to have gotten as much attention from regulators as cryptocurrencies, but their legal status is just as uncertain. However, in 2022, the government released rules on the taxation of cryptocurrency, as detailed below:
Are crypto sales taxed?
Finance Minister Nirmala Sitharaman said changes would happen when she presented the Union Budget 2022 on April 1, 2022. One among them is a tax on cryptocurrencies and other digital assets. She said, “Any income from the sale of a virtual digital asset will be taxed at the rate of 30%.”
Here are some of the salient points of the Union Budget 2022 detailing cryptocurrency taxes:
1. There will be a 30% tax on money from selling digital assets like crypto and NFTs.
2. No deductions will be allowed when reporting income from the sale of digital assets, except for the cost of acquisition.
3. You can’t subtract a loss from digital assets from any other income.
4. The person who gets the digital asset as a gift will have to pay tax.
5. You can’t use income from one digital currency to compensate for losses from another digital currency. (Example: profits made in bitcoin cannot be set off against a loss made in Ethereum or any other coin)
How to determine if you owe crypto taxes?
For starters, a uniform 30% rate will be applied to all crypto gains made in a given year. An individual who purchases a cryptocurrency for Rs. 10,000 and then sells it for Rs. 12,000. would have a profit of Rs. 2,000 and would owe taxes of Rs. 600 (30% of Rs. 2,000 = Rs. 600+cess).
You only owe taxes to the government if you’ve profited from a crypto sale. Suppose you’ve purchased Bitcoin at Rs.2000, and its price today is Rs. 3000; you only owe taxes if you’ve sold the Bitcoin in the market at an Rs.1000 profit. If it is still in your wallet without you having sold it, you don’t owe taxes.
Also, you owe no tax to the government if the net total of your crypto transactions is at a loss for you. You can not even carry forward this loss. You only owe taxes if you’ve gained money from crypto transactions at the end of the financial year.
The government has imposed a TDS of 1% on the proceeds of any cryptocurrency exchange redemptions. Therefore, even if you incur a loss on the trade, TDS will be deducted at the time of sale.
For illustration purposes, let’s say you spent Rs. 40,000 on Bitcoin and then sold it for the same amount, making no profit. You would only get 39,600 back after the deduction of TDS. The TDS deducted will reflect in your Income tax portal and can be adjusted with your Income tax payable.
How to report the sale of crypto on taxes?
Due to a lack of definitive clarity following the Budget session of 2022, contradictory information has been floating around online. So, here are the procedures you need to do to pay your 30% crypto tax and perhaps put your mind at ease. After the current fiscal year ends, the tax will be levied during the following assessment year (2023-24).
- You should start with a clean slate and include all your crypto holdings until April 2022.
- When selling cryptocurrency, be sure to write down the corresponding INR values. You will have to pay the levy in Indian Rupees (INR), not bitcoin or cryptocurrency.
- Income from digital assets must be reported using either Form ITR-1, ITR-2, ITR-3, or ITR-4, depending on the asset’s jurisdiction.
- Institutions and enterprises must submit returns using either Form ITR-5 or Form ITR-6, depending on the circumstances.
To conclude:
How much tax you end up owing on your cryptocurrency depends on the amount you spend or trade, your income level and tax bracket, and how long you’ve held on to your portfolio.
You only have to pay taxes on your cryptocurrency when you make a profit, which happens only when you sell, use, or trade it. Holding cryptocurrency is not something that needs to be taxed.
FAQs:
Do you have to pay taxes on crypto if you reinvest
If you have made a profit from the overall amount you’ve invested, or reinvested, then you are eligible to pay a 30% tax. If you reinvest your cryptocurrency and make a loss, then you would not have to pay taxes. However, 1% TDS applies on all exchange redemptions of cryptocurrency.
Do you have to pay taxes on cryptocurrency gains?
Yes, if you do make gains in the cryptocurrency market, you must pay a 30% tax to the government while paying your taxes.
Do you have to pay taxes on bitcoin if you don’t cash out
No, you don’t need to pay a tax if you haven’t cashed out on your bitcoin or other cryptocurrencies. However, for every exchange, a 1% TDS will be deducted and paid to the government.
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Interference of Crypto Taxes with PayPal Crypto Payments
Introduction
Since 1998, PayPal has served as a payment processor. The company has long been a staple of the virtual economy, but it recently entered the cryptocurrency space. In 2020, PayPal declared that it would allow users to purchase, hold and sell cryptocurrency on its platform.
Moreover, according to their plans, cryptocurrencies will soon be accepted as a funding source for transactions at its 26 million merchants worldwide.
This is good news for crypto enthusiasts using PayPal for years to make payments and transfers with their virtual currencies.
However, this move will also introduce a new set of cryptocurrency tax regulations.
How do crypto taxes work?
As per the IRS (Internal Revenue Service), any cryptocurrency is categorized as a property and not as a currency.
This implies that there is a taxable transaction whenever you sell, exchange, or dispose of cryptocurrencies to make a purchase, just like any other assets such as stocks, real estate, and bonds.
Investors will have to record this gain on their tax return, and they will have to pay capital gain taxes on it. How much the investor will pay in cryptocurrency taxes depends on various factors, including their tax rate and whether they made a short-term or long-term gain.
Users of PayPal are therefore required to file tax returns if they sell or otherwise dispose of their cryptocurrencies through the PayPal cryptocurrency hub.
What is the PayPal crypto hub?
PayPal crypto hub is a platform that will allow the buying, selling, and storage of crypto for its worldwide users. PayPal launched it in 2021, and through it, crypto holders can make purchases at any of the 26 million PayPal merchants.
Since the PayPal crypto hub is not fully developed, currently, you can buy and sell only the following cryptocurrencies; Bitcoin, Litecoin, Ethereum, and Bitcoin Cash.
How do you report PayPal crypto taxes?
Now, let’s talk about how PayPal’s crypto tax is levied. You have four options in the PayPal crypto hub: buying, spending, selling, or holding the crypto.
When a person buys crypto, there is no tax. Further, when one holds the crypto, there is no tax. However, when someone sells or spends crypto, they incur a capital gains tax.
Users can instantaneously convert their preferred cryptocurrency balance to fiat cash, with a certainty of value and no extra costs, when they spend crypto for any goods or services.
Any capital gains (sale price – purchase price) will be subject to capital gains tax, not the total value of the transaction. The person who incurred the capital gain must include a section for capital gains and losses related to cryptocurrencies in their Tax Return.
Each disposal (sale or expenditure) must be reported on IRS Form 8949, together with your net capital gains and losses on Schedule D.
Example: Using bitcoin to buy a car on PayPal
Suppose Sophia is looking to purchase a $15,000 car from a PayPal vendor, and currently, the price of bitcoin is $15,000.
Sophia purchases the car by giving one bitcoin (BTC) in her PayPal wallet for the transaction. When Sophia initiates the transaction, PayPal translates one bitcoin into $15,000 and sends the money to the merchant.
However, Sophia purchased bitcoin for $10,000 a few years ago, and now its worth is $15,000. Thus, she is liable to pay long-term capital gain on the bitcoin. The tax rate will depend upon her total taxable income.
Cryptocurrency withdrawals
Earlier cryptocurrency withdrawals were not allowed from PayPal, and one had to sell their cryptos to close the account.
However, on June 7, PayPal announced that users can now withdraw their cryptos to third-party exchanges, hardware wallets, and crypto addresses. It further allows sending cryptos to friends and family.
Prioritize other important aspects of your finances, like savings and taxes, before purchasing cryptocurrency, whether through PayPal or not.
No matter the platform you choose, spend some time studying long-term cryptocurrency investments, keeping your money secure, and navigating market fluctuations.
FAQs
1. Can you transfer bitcoin to PayPal?
Earlier cryptocurrency transfers or withdrawals were not allowed from PayPal, and one had to sell their cryptos to close the account.
However, on June 7, PayPal announced that users can now transfer or withdraw their cryptos from/to third-party exchanges, hardware wallets, and crypto addresses. It further allows sending cryptos to friends and family.
2. What are PayPal crypto fees?
The amount of cryptocurrency you purchase or sell determines the transaction costs.
Purchase/Sale Amount Fee $1 to $4.99 $0.49 $5 to $24.99 $0.99 $25 to $74.99 $1.99 $75 to $200 $2.49 $200.01 to $1000.00 1.80% More than $1000.01 1.50% 3. How much crypto can I buy on PayPal?
With as little as a $1 investment, PayPal is one of a select few well-known mobile and online payment systems that let customers in the United States purchase, sell, and keep cryptocurrencies.
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How to Build a Cryptocurrency Portfolio?
The old saying goes, “What you can measure and track is always something you can manage – and hopefully grow.” This is more important than ever in today’s volatile financial environment when personal wealth and return on investment (ROI) are at stake.
And no other asset requires as much watching, measuring, and management as cryptocurrency– an exceptionally volatile investment. Before delving deeper into how to build a crypto portfolio, let’s understand what crypto portfolios are.
What is a crypto portfolio?
The term “cryptocurrency portfolio” refers to a method for keeping track of your collection of digital cryptocurrency holdings. Keeping tabs on the value of your coins and using the software’s built-in metrics is a breeze when you host your cryptocurrency wallet online.
Like several portfolio management apps provide data and price alerts from cryptocurrency exchanges.
Like a company’s income statement, a crypto portfolio shows gains and losses much like a company’s income statement. By regularly reviewing holdings, cryptocurrency investors may ensure their money is growing and that nothing is lost in the shuffle.If you’re wondering how to build a crypto portfolio, we’ve got your back. Read on to learn how to build a good crypto portfolio.
How to allocate crypto in your portfolio:
Investors of all kinds are looking for tools to assist them in maintaining track of their cryptocurrency performance and development in the following months and years. When researching how to keep tabs on your crypto holdings, you can always pick a method that works best for you.
To build a crypto portfolio, you can add/remove the different types of investments associated with crypto:
Payments coins:
The first cryptocurrency, Bitcoin, is also a type of payment coin. These currencies are generally used to facilitate payments. For example, cryptocurrencies like Ripple, Litecoin, Dogecoin, etc are payment coins.
Stablecoins:
Stablecoins are digital currencies whose value is fixed with respect to some other asset, such as a fiat currency or a commodity price. The Stablecoins are an attempt to counteract the excessive volatility of Bitcoin and other prominent cryptocurrencies, which has limited their utility as a medium of exchange.
PAX Gold (PAXG) is a coin backed by one ounce of gold held in reserve. While BUSD is an instance of a stablecoin that is tied to the US Dollar at a 1:1 ratio, other stablecoins exist.
Security tokens:
Security tokens are a form of digital assets which reflect ownership rights or asset value transferred to a blockchain token. The investing criteria are specified before creating a security token through tokenization. The data is recorded into the blockchain, which subsequently generates a token.
Simply put, security tokens are digital versions of traditional securities posted on the blockchain.
Utility tokens:
A utility token is, by definition, a cryptocurrency created by a crypto project to finance itself. This occurs through currency offers. Consequently, the name of these tokens is derived from their utility in this crypto ecosystem. These tokens can be used to purchase project-related products and services and other similar utilities.
Theoretically, utility tokens should have a value equivalent to the utility they bring to investors like you and me. ETH is an example of a utility token since it may be used to pay transaction fees while interacting with apps on its network.
Governance tokens:
Governance tokens confer the power to vote on matters that govern the growth and administration of a blockchain project on its holders. It is a way for projects to delegate decision-making authority to their communities.
How to build a crypto portfolio?
Here are the steps to manage a crypto portfolio:
Open a crypto investment account:
Register with a cryptocurrency broker or exchange and establish an account as the initial step in constructing a cryptocurrency portfolio. This includes KYC and other regulatory processes according to their standards.
Assess your risk appetite:
Evaluate your level of risk. As a result, you should do an internal examination to determine the degree of danger with which you are comfortable. You can classify yourself as a low-risk investor if you are looking for a decent return but are not willing to risk losing too much money.
Decide asset allocation:
After assessing your risk level, asset allocation is easy. What percentage of your portfolio will be cryptos? If you’re a low-risk investor, start small and keep rising.
Research and study:
Appetite for risk and allocations are easy to determine. Whether you’re investing 2% or 10% of your money in cryptos, if you don’t perform your own research and just follow social media hype, you’ll likely lose it all within a year.
Market volatility won’t terrify you if you do your own study.
Rebalancing your portfolio:
Because of the significant market volatility, your various crypto assets may see disproportionate changes. Rebalance your cryptocurrency portfolio on a regular basis (say, quarterly or yearly) in accordance with your initial investing plan.
Follow an investment style – SIP:
If you’re not comfortable investing a large sum in crypto or want to take advantage of market volatility, follow a SIP-style investment program and invest a modest amount each month.
This is an excellent approach for any investor, given the significant volatility of cryptos.
To conclude:
The cryptocurrency industry leans heavily on bitcoin, but diversifying your portfolio can help distribute your risk. Diversification is crucial to counter bitcoin collapse losses. A portfolio balance isn’t merely holding various coins. A solid strategy is key to developing a risk-appropriate portfolio.
Good luck!
FAQs:
1. What is a balanced Crypto Portfolio?
A well-balanced crypto portfolio includes various use cases and risk levels. The investor assigns a specific amount of money to each cryptocurrency and re-balances it when purchasing or selling.
2. How many coins should I have in my crypto portfolio?
Your risk-adjusted return will be highest with 3–9 cryptocurrencies. Bet spreads lessen risk. You’ll hold currencies that aren’t as popular as bitcoin and ether. Before investing, it is essential to establish a minimum coin market cap.
3. How diversified should my crypto portfolio be?
By any definition, digital currencies should be considered a single asset category. A cryptocurrency portfolio, however, allows you to spread your risk over a variety of currencies and tokens with varying purposes and applications. Your portfolio may, for instance, be split so that 40% is invested in Bitcoin, 30% is held in stablecoins, 15% is in NFTs, and 15% is in other cryptocurrencies.
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Crypto Taxes: How Does Donating Bitcoin Affect My Taxes?
Introduction
The start of 2022 saw Bitcoin nearly double in value from January 2021, i.e., from $30,000 to an all-time high of over $68,000 in November 2021, concluding a year that saw cryptocurrencies’ phenomenal rise in popularity.
The cryptocurrency sector as a whole increased to a market valuation of more than $2 trillion. However, there is still a lot of ambiguity over Bitcoin’s taxation even a decade after its launch.
The IRS (Internal Revenue Service) has categorized bitcoin as an asset that is taxed similarly to property. For most taxpayers, the traditional route of donating to a charity is the most straightforward. However, those who own cryptocurrency may question how donating cryptocurrency can affect their tax burden.
Cryptocurrency donations can be a great way to give back to the community you love. However, to make the most of your giving with cryptocurrencies, you must understand how tax laws interact with this form of giving.
Is cryptocurrency charitable donation tax deductible?
Using cryptocurrency to make your gifts, you can improve the world while also reducing your tax and financial burden.
A cryptocurrency donation made directly to a nonprofit is not taxed, indicating that one will not be required to pay any capital gains tax. If you donate bitcoin or any other crypto, it would also qualify for a tax deduction, just like any other kind of giving/donation.
If the cryptocurrency is purchased and sold after one year, the fair market value of the cryptocurrency at the time of your gift can be deducted from the tax liability.
Why should I donate bitcoin?
According to the IRS, a gift is when you give someone something without expecting anything in return or just getting something of lower value than the item you gave them.
Are you aware that a bitcoin donation may be used to reduce your taxes? Yes, you may give cryptocurrencies to charity and get a tax deduction!
It is a fantastic method to earn a tax advantage and assist your preferred charities at the same time. And, since bitcoin is becoming increasingly popular, more charities will likely start accepting it.
So, why not take advantage of this tax break and donate bitcoin today? It is a win-win situation!
In 2021, cryptocurrency donations on Crypto Giving Tuesday surged by 583% compared to 2020.
Donating bitcoin has advantages for both donors and donees.
Bitcoin gifts are often non-taxable events in the US for the receiver (donee). The beneficiary is not required to submit any tax form. The receiver will be required to pay capital gains taxes if the gift is sold later.
For donors, if a bitcoin is donated to any charitable organization, the donor will not be required to pay any capital gains tax. Moreover, the donation made will be deductible as a charitable contribution.
What tax advantages come with donating bitcoin?
When you donate cryptocurrencies like bitcoin, you may be able to avoid paying capital gains taxes and make grants for 100% of the value to the charity of your choosing.
When charities accept cryptocurrencies, the entire value of your donation is preserved because capital gains taxes are not due.
Otherwise, long-term capital gains rates of 0%, 10%, or 20% may be levied depending on your taxable income. In addition, a bitcoin donation would be tax-deductible.
If the bitcoin is sold after one year, the fair market value of the bitcoin at the time of your gift can be deducted from the tax liability.
Tax treatment of bitcoin donations
Bitcoin donations to 501(c)3 organizations or other tax-exempt NGOs under Section 170(c) of the IRC are tax deductible.
If investors sell the bitcoin after one year of holding it, they can deduct the fair market value of their bitcoin at the time of the donation.
However, if the investor sells the bitcoin before 12 months of holding it, they can deduct lesser of the cost of the cryptocurrency or the fair market value, up to 50% of their annual gross income.
Furthermore, no capital gains tax will be levied if you donate cryptocurrency or bitcoin.
Donors must utilize form 8283, titled “Non-Cash Charitable Contributions,” to declare donations exceeding USD 500. Additionally, take a receipt from the nonprofit organization for your gift, as the IRS may require one.
If donations exceed USD 500,000, a receipt must be submitted with your tax return as verification.
However, seek advice from a tax expert for better clarity on how this works, how cryptocurrencies will be valued, and who will perform the valuation.
FAQs
1. Can you donate cryptocurrency?
Yes, cryptocurrency donations can be a great way to give back to the community you love while saving on taxes. Cryptocurrency owners can donate any cryptocurrency they hold to 501(c)3 organizations or other tax-exempt NGOs under Section 170(c) of the IRC.
2. Do you get taxed if you send someone crypto?
There is no tax on a crypto donation to a nonprofit. This suggests that you will not owe any capital gains tax. In addition, similar to other types of giving or donations, this form of contribution would be eligible for a tax deduction.
3. Can I give bitcoin as a gift?
Yes, bitcoin holders can give their bitcoin as a gift to their spouse, relatives, friends, organizations, charitable organizations, etc.
However, donating bitcoin to NGOs can serve two purposes; supporting a cause and saving on taxes.
4. How do I set up a bitcoin donation?
Typically, donating cryptocurrency involves sending money from your wallet to the recipient. Often, that will be an NGO. Most exchanges let you send money, or you may use a Web 3 wallet.
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How to Report Stolen, Lost, or Scammed Coins on Your Taxes
Key Takeaways:
- Learn about how to deduct lost or stolen cryptocurrencies from your tax liability.
- Learn how to protect your cryptocurrencies from any losses.
Cryptocurrency thefts and scams are increasing each year. Here’s how to report stolen cryptocurrency during your tax filing.
How to Deduct Lost Cryptocurrencies
Can you use a crypto loss for a tax write-off? That completely depends on your country of location. For instance, in the U.S, lost cryptocurrencies are referred to as casualty losses – or the damage of owned property from a sudden or unexpected event. Under U.S IRS law, a casualty loss is tax deductible only if the loss is declared as a “disaster” by the federal government.
For cryptocurrencies, a casualty loss technically means losing access to your crypto wallet or sending your crypto assets to the wrong wallet. Under the following circumstances, you cannot claim a crypto loss tax deduction:
- You lose your private keys.
- Lost your crypto holding due to negligence.
- Transfer your crypto assets to the wrong wallet address.
How to Deduct Stolen Cryptocurrencies
Besides crypto losses, cryptocurrencies can also be stolen by a cybercriminal. A stolen cryptocurrency can be in the form of stolen coins, hacked wallets, or a compromised crypto exchange.
Cryptocurrencies thefts can occur in any of the following forms:
- Crypto Exchange Hacks
This happens when crypto hackers exploit vulnerabilities in the crypto exchanges to gain illegal access to user accounts. One such example is that of Crypto.com where Bitcoin and Ethereum worth around $30 million were stolen in January 2022.
- Malware
Crypto hackers can also use malware variants to steal user credentials from their computers or mobile phone. For instance, the CryptBot malware was deployed to steal users’ wallet details and then Bitcoin was worth nearly half a million dollars.
- Physical theft
This includes crypto thefts that are a result of stolen mobile phones, computers, or even hardware wallets. Hackers have emailed hacked hardware wallets to users – and then used them to steal their cryptocurrencies.
Unlike thefts of physical cash or credit cards, stolen cryptocurrencies cannot be easily recovered. Similar to casualty losses, stolen cryptocurrencies are not liable for a tax deduction.
How to Deduct Cryptocurrency Scams
Cryptocurrency scams are becoming more common in the world of cryptocurrencies. One such fraudulent scam was the BabyMaskCoin Initial Coin Offering (ICO) where the company founder ran away with over $2 million.
Can you write off being scammed? Yes, you can report crypto scams for tax benefits if you have lost your crypto assets due to such scams. Crypto scams are classified as “investment losses” thus making them tax deductible. You can deduct your losses from any capital gains – and up to a maximum of $3,000 of your yearly income. If you have incurred a loss of more than $3,000, you can also carry forward the losses to the next financial year.
Unlike crypto thefts and losses, cryptocurrency scams are tax-deductible as they come under-investment losses. If you are a U.S citizen, you can report these losses in Form 8949 and Form 1040 (Schedule D) – and claim tax deductions.
Instead of looking for tax deductions against crypto thefts, losses, or scams, it’s always advisable to avoid these losses in the first place. Let’s check how to prevent these losses in the next section.
How to protect against Cryptocurrency losses
Here are some steps you can take to protect your crypto assets from losses:
- Insured Exchanges
First, select reliable cryptocurrency exchanges that insure their user’s deposits against any losses. Some exchanges also provide insurance against security breaches on their platform.
- Cryptocurrency insurance
You can protect your cryptocurrencies from theft using Crypto Insurance policies. For instance, there are insurance policies of up to $100,000 against crypto theft from your account.
- Due diligence
Before investing, take due diligence when evaluating any cryptocurrency opportunity. For instance, study the fine print of any ICO, or whitepapers, and ensure that every new opportunity is backed by reputed investors or companies.
- Cold storage
For the best protection, make sure you keep your cryptocurrency investments in cold storage – that hackers cannot access easily. At the same time, make sure you don’t lose your devices or private keys.
As the investment mantra goes, “Do not put all your eggs in the same basket.” Diversify your crypto holding by investing in different cryptocurrencies. Additionally, choose multiple DeFi platforms to invest instead of a single platform.
Additionally, investment instruments like Exchange-traded funds (ETFs) are safe and reliable as they do not involve direct ownership of crypto assets.
The Bottom Line
Be it in the form of cryptocurrency losses, thefts, or scams, it’s not clear if you can claim tax deductions on these losses. It’s also critical to protect your crypto holdings or portfolio using the preventive measures outlined in this article.
Are you confused about claiming tax deductions if you have been a victim of any of these violations? Binocs can answer your queries. You can also safeguard your future investment by creating a crypto portfolio on our platform. Visit our website to know more!
Frequently Asked Questions
- Where do I report crypto losses on my taxes?
In India, you can report any long-term capital gains (or losses) for cryptocurrencies under the CG section of the ITR-2 and ITR-3 forms. U.S citizens can report their crypto losses in Form 8949 and Form 1040 (Schedule D) for the financial year.
- Can I write off lost crypto?
No, you cannot write off any cryptocurrency losses against any other earned income – neither can you carry forward the loss to the next financial year.
- Do I have to pay tax on crypto loss?
Under the new tax provisions in India (applicable from April 2022), investors are liable to pay a 30% tax on any crypto gain. Any crypto loss is not deductible from the applicable tax.
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Do Crypto-to-Crypto Transactions Have Tax Implications??
Key Takeaways:
- Learning about which cryptocurrency transactions have (or do not have) tax implications.
- Learning about capital gains or losses on crypto-to-crypto transactions.
If you are investing more into cryptocurrencies, here is everything you need to know about crypto-to-crypto tax implications.
Is exchanging cryptocurrencies taxable?
Under the Indian Income Tax Act, cryptocurrencies and other digital assets (Virtual Digital Assets) are treated as “property,” which is taxable.Crypto to crypto transactions mean buying with crypto using another one, without converting them to fiat. Here, the crypto that is used to buy is assumed to be disposed of. Since this will be considered as a transfer of VDA, tax has to be paid on it.
The market value of the asset disposed of needs to be converted to fiat. From this sale amount, you can reduce the cost of acquisition and pay tax at 30% + applicable cess and surcharge.
Let’s understand this with an example.
Capital gain on Crypto-to-Crypto Transactions – Example
Let’s consider an example where you have purchased 1 BTC at a price of ?50,000. After holding it for one year, its market value rose to ?75,000. Then, you decided to exchange your 1 BTC for 2 Ethereum worth ?75,000.
In this transaction, the difference between the purchase price (?50,000 of BTC) and the selling price (?75,000 of Ethereum) is ?25,000, which is recorded as the capital gain.
Capital loss on Crypto-to-Crypto Transactions – Example
In another transaction, you purchase 1 BTC at a price of ?50,000. After holding it for one year, its market value drops to ?25,000. Then, you decided to sell your 1 BTC in exchange for 2 Ethereum worth ?25,000.
In this transaction, the difference between the purchase price (?50,000 of BTC) and the selling price (?25,000 of Ethereum) is ?25,000, which is recorded as a capital loss.
Is every cryptocurrency transaction treated as taxable? Let’s discuss this in the next section.
Which Cryptocurrency transactions are taxable events?
In general, any cryptocurrency transaction that involves disposing of your owned crypto assets is treated as a taxable event.
Here are some scenarios when cryptocurrency transactions are taxable events:
1. Selling cryptocurrencies for fiat currency
Traditionally, crypto investors have earned money by selling their crypto assets for fiat currencies like USD or INR. This form of transaction is performed through crypto exchanges or platforms. The seller receives the equivalent market value of the cryptocurrency in the selected fiat currency.
When you sell your cryptocurrency at a market price higher than your purchase price, you owe a capital gain tax on the price difference.
2. Using cryptocurrencies to buy goods or services
You can also dispose (or sell) your crypto assets in exchange for any product or service. In this case, you are liable to pay a capital gain tax if the value of your digital asset (at the time of the transaction) is higher than the cost of purchase.
3. Earning income through cryptocurrencies
You are also liable to pay taxes if you are earning your monthly income by trading in cryptocurrencies. This is similar to the role played by a stock market broker or trader.
You can earn a crypto income through any of the following activities:
- Crypto mining: This is applicable when you are involved in cryptocurrency mining as a profession or business. Successful mining of cryptocurrencies can be a taxable event. You are also liable to pay taxes if you sell your mined cryptocurrencies with capital gains.
- Crypto Staking: This is another activity when investors can temporarily hold cryptocurrencies to generate rewards or earn interest. Crypto stalking is also effective for increasing their holdings.
- DeFi: Short for Decentralized Finance, you can also earn income from DeFi transactions like stablecoins, tokens, NFTs, and liquidity mining.
- Crypto Airdrops: is one marketing strategy where investors can acquire crypto assets without purchasing them.
- Crypto-based payments: This applies to freelance (or gig) workers rendering their services in exchange for payments in cryptocurrencies.
4. Trading cryptocurrencies
Finally, you may be involved in trading one cryptocurrency for another – and earning an income. In this case, you are liable to pay taxes if you have earned a capital gain on these transactions.
If you are engaged in any of these four activities, then you are liable to pay a tax. However, other activities do not attract any tax. This includes:
- Purchasing cryptocurrencies using fiat currency
- Transferring your crypto assets to another exchange or wallet
- Gifting cryptocurrencies
- Donating cryptocurrencies
Are you still confused about the tax implications of cryptocurrency transactions? Binocs can help you out. With our online portfolio, you can also track your cryptocurrency investments and performance. Visit our website to know more.
Frequently Asked Questions
Is converting from one crypto to another a taxable event?
Yes, this is a taxable event as it involves disposing of a capital asset. A flat 30% tax is applicable if you have earned profits by completing this transaction.
Is converting crypto the same as selling?
Yes, converting a crypto asset into another digital asset and fiat currency is the same as selling. This is a taxable event. You are also liable to pay tax if you use cryptocurrency to pay for any product or service.