When it comes to the topic of crypto or cryptocurrency, we’re never going to claim that we’re experts. When it comes to taxes we know a lot more on how to handle them. Still, we’d feel remiss if we didn’t talk a little bit about what crypto is and how it compares to stocks, which most people have heard about but might not understand either.
not a bitcoin!
Let’s talk about stocks, the stock market and investing. A quick explanation about stocks is that they’re investments in a company or corporation. You can buy them through a stockbroker or some kind of digital application run by either individuals or companies.
Many banks have relationships with investors that will manage your accounts in large packages so that you won’t have to deal with it, as long as your investment is large enough. In some of the stocks purchased, you actually have voting rights if you determine you want to participate, but the largest buyers will have more clout than regular investors.
Investments are in businesses that offer a certain number of shares that they put out so people can pay to invest in them. They do that to raise capital for the business so they can hopefully grow. They determine the initial number of shares they’re willing to create and add a price per share.
Once it’s open to investors, the price rises or falls based on how many shares are purchased, how much money is actually raised, and how stable the investment performs. If the price keeps going up, more buyers show up to get into the game; if it goes down, more investors are liable to want to sell. If the number of shares are fixed (which most are initially), buyers can only purchase shares if previous buyers are willing to sell their shares; that helps drive the price up.
If previous buyers start selling shares and the price isn’t going up, some buyers will wait to see how low the price might go before getting into it, with the hope that the company the shares are related to will turn the corner and go back up eventually. The main thing to know about stocks is that if you have a broker, their finances are based on how well they handle your investments, which means they’re watching your back so you don’t have to.
As for crypto, most people think it’s something relatively new, but the first crypto currency was actually created in the 1989; it was called DigiCash. It wasn’t very successful because the company couldn’t get enough people to join, and it went bankrupt in 1998, and it wasn’t tried again until 2009 when Bitcoin came around.
In general terms, cryptocurrency is digital currency; you buy it online from a cryptocurrency company. The price rises and falls based on activity and how much or little people are buying or selling. The major difference between it and stocks is that crypto doesn’t connect with businesses; you don’t buy shares. You invest in things like mathematical problems, crypto tokens, and a number of things we’ll admit confuse us, based on something called blockchain. Here’s a link to information that might help you.
In any case, it’s investing, which means the IRS can tax it. Cryptocurrency’s classified as property, meaning income and capital gains via crypto are taxable and losses may be tax deductible. So, if you’re someone who invested in FTX, which collapsed quickly and totally, or any crypto company that collapsed, and you suffered a big loss, at least you might recover something back from the government via tax breaks.
Some believe that unless they cash in their investments that they don’t need to report anything to the IRS; unfortunately this isn’t true, and not doing it can lead to penalties. Cryptocurrency isn’t regulated, so it’s probably best hiring someone who understands it to handle it for you.
Here’s a few things to know as it pertains to taxes. If you sell your crypto for cash, you have to pay taxes on it. At the same time, if you swap the crypto you have for another one, you still have to report it, along with the difference, positive or negative.
There’s a lot of things that need to be considered when it comes to crypto and taxes. You can get forms from the IRS to help you figure it out; it’s probably better if you work with an accountant or accounting company who’s learned how the tax codes work and can help you with accuracy along with your other taxes as well.