Bitcoin Tax Calculator For Beginner The term cryptocurrency has taken the entire world by storm. In recent years, the cryptocurrency market has gained huge popularity among common people. The term looked alien to many folks but it was intimidating that people soon wanted to learn more about cryptocurrencies and started investing in it. Among all the cryptocurrency, Bitcoin is the most commonly used and popular term which is highly liked by huge people. Buying bitcoin is very easy, you can simply send a request to buy a product to the bitcoin network, and the wallet has a private key which provides digital signing of transactions. It is not possible to forge or modify the signature. Each and every transaction is well recorded and the transaction is confirmed just within minutes using mining.
Bitcoins have their own benefits like
- There is almost zero scope of fraudulent activities.
- There is no involvement of any third party activity and every transaction can be done without paying an additional cost.
- Bitcoins are easily accessible, all you need is an internet connection to do the transaction.
Many people have invested in the bitcoin and are getting huge benefits from it but they are struggling to calculate the taxation. Here is the complete guide to calculating the bitcoin tax, you can also use taxact Bitcoin calculator.
These are the guidelines which must be considered in order to calculate the bitcoin tax.
- Calculate the time total duration of purchase/sales of the bitcoin. If the total duration is less than a year the profit is liable for the short-term capital gains taxation. If you have the bitcoin for more than a year, it is considered as long-term capital and the profit will be based on the long-term taxation.
- The tax filing status and the total taxable income. This is an important data which helps to determine the total tax bracket and the overall tax rate for the bitcoin profit.
- The taxation of state and its rate. This will help to determine the total amount of state tax which you owe.
Step by step guide to calculating the bitcoin taxation for the beginners.
You may experience bitcoin gain or losses in below-mentioned transactions
- Exchanging cryptocurrency
- Spending bitcoin on good and services.
Step 1: Calculate the selling price of bitcoin: –
The initial step is to find out the total selling rate of bitcoin. In order to find the total profit, multiple the sales price of bitcoin by the total number of bitcoin sold. For Example: If you have 5 bitcoins and the selling price for each is $1000, Then the total selling amount is 5*$1000 = $5000. Now, you need to deduct the amount paid for the bitcoin and selling fees. Finally, you will be able to calculate the gain i.e. the overall profit after selling the bitcoin. Sales amount – selling fee = Actual gain
Step 2: Identify whether it is short term or long term gain
For this, you need to find out the purchase date of bitcoin. Check your calendar and note the date. This information will help you to get the details about the holding periods i.e. how long you owned the bitcoin.
- The gain is short term if the holding periods of bitcoin is less than one year.
- The gain is marked as long-term when the holding period of bitcoin is more than a year.
- The taxation depends on the type of gain you have made using bitcoin.
Step 2: Calculation of taxes
Once you have all the details handy you just need to check the income tax bracket and calculate it. Bitcoins, mining coins, payment received and exchange of coils all are taxable income and are taxed as self-employment income. The bitcoins have turned many from rags to riches. It is important for the people to pay tax who have made money from the bitcoins. If anyone is non-compiler they will be receiving legal notice. The government has not yet made the trade of bitcoin completely legal and are waiting for a special committee to make a final decision. The bitcoins are not going to be abolished completed but the government is planning to regulate and set strict taxation slabs.