I’m curious about how holding onto cryptocurrencies like Bitcoin or Ethereum impacts my state taxes here in California. Do I need to report it if I haven’t sold any? And what if the value goes up or down, does that matter for my tax return?
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However, it is crucial to maintain meticulous records of your cryptocurrency transactions, including the date of acquisition, the purchase price (also known as the basis), and any associated fees. This information is necessary to calculate the capital gain or loss when you eventually dispose of the cryptocurrency.
The fluctuation in value of your cryptocurrency holdings does not impact your tax liability unless and until a taxable event occurs. A taxable event is triggered when a transaction results in a realized gain or loss. For instance, if you sell your cryptocurrency for more than your adjusted basis, you will incur a capital gain, which must be reported on your tax return. Conversely, selling below your adjusted basis results in a capital loss, which can be used to offset other capital gains or, to a limited extent, ordinary income.
It’s important to note that short-term capital gains (on assets held for one year or less) are taxed as ordinary income, while long-term capital gains (on assets held for more than one year) may benefit from reduced tax rates. The specific rate depends on your overall taxable income.
Given the complexity of tax regulations and the nuances of cryptocurrency taxation, it is advisable to consult with a tax professional who is well-versed in both state and federal tax laws regarding digital assets.
In California, the tax situation for crypto is similar to stocks. You’re taxed on gains when you sell, not just for holding. If the value goes up but you don’t sell, no tax yet. But keep records; you’ll need them if you do sell later.
If the value of my cryptl goes upward or down but I don&rsquо;t sell, it doesn’t impact my tax return?
To add to the previous points, it’s important to note that while holding crypto isn’t a taxable event, any gains realized upon selling are subject to tax. California treats crypto like property, so capital gains rules apply. If you hold for less than a year, it’s taxed as ordinary income. Over a year, it’s a long-term gain, which might be taxed at a lower rate. Always consult with a tax professional for your specific situation.