The Basics of Crypto Taxes
Crypto Taxes differ based on using cryptocurrencies, buying and selling cryptocurrencies, and various automated crypto bots for trading cryptos. Crypto Taxes fall into Capital Gains Tax and Ordinary Income Tax.
Capital Gains Tax: Capital Gains Tax will be infused upon cryptos that have reached a different value from their original value (when the crypto was bought). The Crypto Taxes will be calculated based on how much higher or lower the value of the crypto has been from the original value.
Ordinary Income Tax: Ordinary Income Tax will be infused upon cryptos with a regular income like any staking rewards or airdrops. This kind of tax will only be infused for certain transactions; if cryptos were transferred among various crypto wallets in the customer’s possession, there would be no tax for those.
Ways to Save Money on Trading Bots Taxes
Once a customer knows how taxes work for crypto bots and cryptocurrencies kept in wallets, learning how to save money on Trading Bots Taxes is essential.
Type of Accounting Method Usage
This is one of the easiest and most brilliant methods to reduce taxes on crypto bot trading. Several accounting methods are used to calculate taxes on existing and sold cryptos from an individual’s wallet or account. To get some money saved during tax, there is a specific method to be used for buying cryptocurrencies. There would be a deduction in tax if the cryptocurrencies were bought at different periods. For example, if a first cryptocurrency were bought during January for some amount, the rate of this crypto would have risen or fallen by the time it reached June. So, if the second crypto is bought during June, then the tax infused for the cryptos bought in January and June would differ if sold.
If the crypto bought in January was sold, it follows the FIFO method (First-In-First-Out), which would have a higher tax to pay. However, if the crypto bought in June was sold, it follows the LIFO method (Last-In-First-Out), which would have a lower tax since the buying and selling of this crypto doesn’t have much time gap, and so the tax amount will be low.
Harvesting the Loss of Cryptos
If most crypto transactions are going at a loss, then the loss can be shown for the deduction of taxes. Mostly the tax benefits will be given for losses up to $3000, and if the loss is more, then the tax for that would be shifted to the upcoming financial year so that there will not be any tax for the current financial year.
Deduction of Relevant Expenses
This is also one of the methods followed for deducting tax amounts. To gain tax benefits through this method, it is important to know how taxes for crypto transactions are calculated.
Capital Loss or Capital Gain = Gross Proceeds – Cost Basis
If the crypto trader paid a fee to buy cryptos, it comes under the Cost Basis, and if the trader paid the price to sell crypto, it would come under the Gross Proceeds category. Both categories will have a fine deduction in the tax that must be paid.
Ways to Track Trades for Tax Purposes
Tracking cryptocurrency trades for tax purposes can be difficult if done manually. If a tax expert handles the process, the process will become expensive. So the wise way to manage trading information and track large volumes of trades is by using automated crypto bots. Automated crypto bots can keep track of the crypto’s buying, selling, and market value during the buying and selling time, etc.
However, some things to remember if a trader wishes to track down their trading information. They should always have answers to the following questions:
- What is the type of existing cryptocurrency?
- How much cryptocurrency is there? (amount)
- When was the cryptocurrency bought? (Date and Time)
- When was the cryptocurrency sold?
- What was the price of the crypto while buying? (in USD)
- What was the price of the crypto while selling? (in USD)
- How much relevant fee was paid? (For both buying and selling)
Crypto Trading Bot Taxes differ according to the type of transaction (buying and selling method) the customer uses. Another reducing crypto trading bot taxes is by harvesting all the cryptos, which are at a loss. The last and final method for saving money on trading bot’s taxes is deducting all the relevant expenses. Business holders keep a regular file of all the cryptos bought and sold, and if they are gaining a steady passive income from those cryptos, it would be treated as a business and will have business tax. If the crypto a business holder holds is minimal, they can pay either Capital Gains Tax or Ordinary Income Tax.