Decrypting Crypto: Making money and filing taxes
Dr. Rob Tennant, a professor at Texas A&M University Central Texas said people make money with cryptocurrency in a few ways, either through investing or mining for it.
Successful miners earn cryptocurrency as a reward, but Dr. Tennant said the equipment needed for mining is an investment, and it’s competitive.
“Everybody in the world is trying to mine one of those top two or three cryptocurrencies,” Dr. Tennant said. “You’re going to be successful less often because there’s more people doing it.”
When people try and make money through investing, Dr. Tennant said they are trying to buy low and sell for a profit. That comes with risks as well, since the market is so volatile.
The Washington Post reports cryptocurrency prices have cratered, and more than $1.3 trillion in value has been lost globally.
“It is not a guarantee that you will make money. I cannot guarantee that you will,” Dr. Tennant said. “I can guarantee you that the people who put it in five years ago and held on to it are all wealthier than they were then, even with it going down. If you’re willing to hold on to it, the longer you’re willing to hold on to it, the greater probability of you coming out in a positive position.”
Dr. Tennant says if people understand the risk, it’s still something to consider investing in.
“If you’re willing to wait the time and you have a portion of your investing cash that you’re willing to put into something that’s a bit more risky, it is not a bad thing to consider,” Dr. Tennant said.
If you’re making money with cryptocurrency, that means you need to report it on your taxes.
Keith Maynard, a Waco-area CPA, said keeping good records is very important, since you need to report a lot of detail on taxes.
Maynard said if you just purchase cryptocurrency, and you don’t sell it, there’s not a lot you need to do on your taxes. Once it’s sold, Maynard said there’s a box to check on the tax form.
He said people need to discloses each transaction, like the quantity sold, type, the purchase date, how much you bought it for and how much you sold it for.
Maynard recommends using a program like CoinTracker, and he also recommends having a CPA look over your taxes.
“If the bitcoin activity is going to be pretty active, pretty intensive, or you’ve got quite a bit going on, or there’s a lot of large gains or large losses or if there’s any questions, I highly recommend reaching out to a CPA,” Maynard said. “It’ll come back tenfold not only to make sure that it’s filed, right, but you also have to keep in mind that it’s really important to keep up with the current events, and to keep up with all of the different happenings. If there’s any legislation that comes out, your CPA was already going to be in the know on that kind of stuff and can help keep you on straight there.”
Maynard said for federal purposes, generally bitcoin is seen as property and tax rates depend on how long you’ve held it.
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