When Taxes Apply

Curious as to whether taxes apply to purchases made with cryptocurrency? Coin Pursuit points out they do, and when they apply to your transactions.

Advocates of digital currency will go out of their way to point out their financial system is free of most of the shackles that can bind government-issued money. There are no bank surcharges or hidden fees, and no worrying about interest rates or inflationary issues that can affect traditional currency. Cryptocurrencies are subject to value fluctuations and the like, it's true—but for the most part they're self-contained and independent.

People new to the field and looking to invest will often ask about taxes. Since digital currencies are, for the most part, removed from the issues that affect traditional money, they're not affected by taxes, then, right? Well, we're sorry to disappoint you, but the answer is no; like the saying goes, the only things in life that are certain are death and taxes. Anywhere taxes apply when traditional currencies are used, they also apply to cryptocurrency, since in the US tax laws are in effect when it comes to any financial exchange. If you're making a purchase, and there are sales taxes that should be paid, by all means pay them. If you receive all or part of your salary in digital currency, make sure your employer takes out the appropriate federal, local and payroll taxes they should be. If you're an independent contractor or business owner, you'll have to do this yourself—or have an accountant or tax expert help you.

If there are taxes that need to be paid on a trade or purchase, chances are the vendor selling the goods or services will be aware of them, and will tack them on to your transaction total. When in doubt, ask, and be honest; it's always best to pay taxes due on a purchase at the time of purchase than to wait. Depending on the vigilance of the taxation authorities involved, they may track down transactions on which taxes should have been paid, but weren't. And late payments of taxes owed usually carry financial penalties.


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