Crypto Decrypted

22Savings, Borrowing, Income Strategies,and Taxes

They say there are two things that are certain in life and one of these two things is taxes. Since we can't avoid them, we're going to round out this section by diving right in while, at the same time, exploring concepts such as the benefits crypto provides via saving and borrowing.

Taxes

Taxes are pretty simple. Pay them. Do not fall into the trap of thinking that crypto is untraceable and anonymous, because that's just not the case. Exchanges such as Coinbase know who you are, they know what you have traded, and the law states that any gains made on the trade of any crypto asset are taxable. Let's say that Jane buys one bitcoin at $18,000. The price appreciates to $25,000, and she decides to sell it to buy a different asset, such as Ethereum. From the perspective of the government, it doesn't matter that Ethereum is still a crypto asset. When Jane sells her bitcoin at $25,000, she has made a gain of ($25,000 – $18,000) = $7,000, and that gain is taxable. Gains also must be calculated on any transaction in which crypto is transacted at a higher value, including trading it for dollars, buying other crypto, or even using it to buy a cup of coffee or a car.  Any time there is a realized gain, taxes must be paid on that gain. Calculating this is relatively straightforward if you use one exchange and are just trading crypto assets; however, if you use many exchanges, you will want to consider implementing third‐party software ...