Cryptocurrency taxation is one of the most highly debated topics in the ever evolving crypto world and is also a very technical topic to tackle for someone who is not versed in finance and accounting. As more traders turn to cryptocurrencies as their primary form of investment and income. It is important that they understand how tax on cryptocurrency works for cryptocurrencies. The best way to do that is to reduce your trading and investment losses as much as possible by trading properly and knowing how you can reduce your taxes.
Trading in cryptocurrencies is considered a capital gain and thus will attract capital gains tax, which could be either short term or long term depending on the holding period of the cryptocurrency. The short term capital gains are taxed at normal income rate while the long term capital gains are taxed at lower rate than normal income.
Tips 1 : Evaluate your portfolio and trade with a disciplined approach
One of the most important points for traders is to evaluate your portfolio and to make trading decisions according to your valuation of the coins. The cryptocurrency market is changing very fast and it will be tough for you as a trader to keep up with the cryptocurrency news unless you have a plan. Evaluate the performance of your initial investment and then take your next trade decision keeping in mind the gains of the last trade. Your trading plan should be followed strictly and the trade should ideally end before the instrument falls deep in the market.
Tips 2 : Consider paying your taxes on time
It is important that you consider paying taxes on your gains when you invest to avoid becoming a tax evader. The best way is to pay taxes when you receive your gains and not when you spend it. You can also consider other options to pay lower taxes like dividend tax credits and closing out of other taxable events like retirement accounts. You should also consider filing for tax extension which is a time period to file for your taxes.
Tips 3 : Forecasting for movements with interest rates & volume data
The best way to forecast the future movement is by using volume and price data. It will be hard for you to predict the movement of cryptocurrencies that have volatile movement especially those with high volatility and many users. Bitcoin in particular has one of the highest levels of volatility in the cryptocurrency market and it will take some time before you can properly predict its movement. You as a trader should also be aware that using volume data could yield results and thus you should use it cautiously.
Tips 4 : Tracking the news & market sentiment
The cryptocurrency world is highly volatile and thus it will be difficult for you to understand the movement of your cryptocurrency if you are not aware about the latest news and developments in the crypto world. You should ideally follow at least eight different sources of news and this will give you a better understanding about what is going on in the market. You should also check the current sentiment in the market and make a decision accordingly. It is important that you combine all the above tips to trade effectively in the crypto market.
Binocs is a platform that connects traders to crypto portfolio management globally and provides a global network of cryptocurrency tax professionals. The platform allows the users to easily connect with a local cryptocurrency tax professional and get their advice on how best they can reduce their taxes by trading in cryptocurrencies.