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What do you need to know about taxes for cryptocurrency in Texas?

On Behalf of | Aug 22, 2022 | Tax |

The US government considers cryptocurrency to be an investable asset, so you might need to pay taxes on it. Some states also have tax laws around cryptocurrency. Because this asset is gaining more traction, all states may soon tax it.

Gains and losses

IRS taxes cryptocurrency gains and losses the same way as stocks, bonds and mutual funds. Short-term capital gains on your cryptocurrency is taxable income when you made the profit on it in less than a year. You could reduce how much taxes that you have to pay by waiting at least one year to sell your cryptocurrency. This is a long-term capital gain, and it is taxed at either 0%, 15% or 20%. Your income bracket determines what the tax rate is.

When you sell your crypto at a loss, you could claim a capital loss. This would allow you to offset gains on other qualifying assets or reduce your taxable income.

State taxes

Texas hasn’t yet rolled out legislation for collecting taxes on cryptocurrency. It’s a good idea to check again before filing your taxes because the state may begin collecting taxes on cryptocurrency.

Tax audits

Because IRS collects taxes on cryptocurrency, tax audits may occur if there is a suspicion that you hid income. You could keep records of your investment and trading activity and bank account statements to prove your income during an audit.

To report your cryptocurrency gains and losses for the year, fill out Form 8949, Sales and Other Dispositions of Capital Assets. Federal law requires that you report these gains and losses. The form has two sections to address short-term and long-term gains and losses.

Whether you earn a profit or have a loss on cryptocurrency, the federal government asks for this information with your income tax return. Add Form 8949 to your return to correctly report this asset.