Just about everyone in this digital age has a vague idea about Bitcoin. Most people would admit that they’ve heard of it but have no idea what it is all about. Before we discuss the Bitcoin tax rate and everything else that is related to Bitcoin, we ought to clear up the basics.
If you’re clueless about Bitcoins, this article should clarify the basics for you.
What is Bitcoin, and what are Cryptocurrencies?
A cryptocurrency is a relatively new, internet-based medium of exchange. It uses complex cryptographic functions to carry out transactions, and it runs on Block-chain technology.
Bitcoin is the earliest cryptocurrency that kickstarted the worldwide peer to peer( P2P) payment system that is known the world over.
Cryptocurrency is digital money. It can be bought and sold by cracking cryptographic conditions. It is considered to be more secure than real money because of the complicated cryptographic functions that this payment system makes use of.
Cryptocurrencies answer to no governing body or centralized system meant to monitor transactions between users. The most noteworthy aspect of cryptocurrencies is that they have no gatekeeper.
History of bitcoin
The world witnessed the birth of Bitcoin in 2009. However, a technical outline was presented for Bitcoin in October 2008, by a pseudonymous person or organization named Satoshi Nakamoto.
In 2009, Bitcoin was the first cryptocurrency to grace the market. There has been a notable increase in the sheer number of cryptocurrencies since Bitcoin received attention in 2009.
Some of those cryptocurrencies are Litecoin, Zcash, and Ethereum. In the beginning, Bitcoin was merely used for private exchange for three years. However, many companies have begun to accept Bitcoin payments. One of them was WordPress in 2012.
Bitcoin in India
RBI and the other leading authorities in India have never chosen to view Cryptocurrencies in a positive light. Their lack of clear regulations proves this to be the case.
In 2013, the RBI issued a press release, in which they warned the users, holders, and traders of cryptocurrencies about the potential risks that cryptocurrencies entail.
This lead several cryptocurrency agencies operating in India to shut down their operations. The RBI then released a white paper where it explained how it was planning to treat cryptocurrencies.
The white paper released by the RBI mentioned that cryptocurrencies were volatile and were not monitored by any authority. They also said that cryptocurrencies lacked intrinsic value, unlike regular currency or stocks. Finally, they pointed out that cryptocurrencies were likely to pose a threat to the Indian monetary policy.
It is essential to note that they also shone a light on the benefits of cryptocurrencies and block-chain technology. Most importantly, the RBI expressed its interest in the idea of developing a national digital currency that could be monitored by a governing body.
Bitcoin tax rate – How are Bitcoins Taxed?
In the United States, the profits generated from its disposal are treated as a capital gain if the purchased currency appreciates.
If the cryptocurrency decreases in value, the losses incurred upon sale can be deducted against capital gains from other transactions. It is critical to note that capital losses can be deducted against ANY capital gains.
If you sell your property for a profit, you can deduct the crypto incurred losses against capital gains from the property you’ve sold. This is how you reduce your Bitcoin tax rate.
Form 8949 is used to declare capital gains. To carry this out correctly, you need a record of every cryptocurrency transaction to date. This helps you avoid overpaying your crypto taxes. Using a crypto tax software simplifies the process of filing your taxes.
Short term & Long term capital gains
The tax you owe will depend on how long you have held your Bitcoin.
Bitcoin sold within one year since the date of purchase is subject to short term capital gains tax.
Bitcoin sold after one year is subject to a long term capital gains tax, which could be 0%, 15%, or 20%. This depends on your taxable income and your filing status.
Long-term capital gains tax is known to be lower than short-term capital gains tax. It is advisable to keep the Bitcoins purchased within the past year.
In the United States, Bitcoin is treated as property under federal tax law. This means that tax laws that apply to property also apply to cryptocurrencies like Bitcoin. Cryptocurrency transactions are subject to capital gains, just like property.
Thse transactions ought to be declared on the 8949 form. This is when a capital gain occurs:
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If you sell Bitcoin for FIAT currencies like the US dollar
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If you use Bitcoins to acquire goods and pay for services
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If Bitcoins are traded for other cryptocurrencies
Capital gains do NOT occur in the following scenarios:
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When you donate Bitcoins to tax-exempt charities or organizations
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When you transfer Bitcoins among your wallets
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When you purchase Bitcoins with a FIAT currency
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When you gift small amounts of Bitcoin (under $15k)
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When you lend your Bitcoins to another party
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When you receive Bitcoins from mining and hard forks.
Conclusion
Bitcoins haven’t been received well in India even though the population is showing great interest. The truth is the RBI doesn’t seem to favor the use of cryptocurrencies because it is impossible to control them. It maintains that Bitcoins pose a grave threat to the Indian Monetary Policy and have no intrinsic value. As a result, the future of Bitcoins in India seems to be hanging by a thread. One can only speculate where the central authorities will go from here, but we can expect them to set some new crypto laws to clarify the Bitcoin Tax Rate in the parliament’s winter session.
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