The sale of cryptocurrency on Cash App is considered a taxable event in many jurisdictions, including the United States. When you sell cryptocurrency, the Internal Revenue Service (IRS) views it as the disposal of a capital asset, which can result in a capital gain or loss. Here’s how it generally works:
Determine Your Cost Basis: The cost basis is the original value of the cryptocurrency you purchased, including any fees. This serves as your starting point for calculating gain or loss when you sell.
Calculate Capital Gain or Loss: When you sell your cryptocurrency, subtract your cost basis from the sale proceeds. If the proceeds exceed your cost basis, you have a capital gain. If the proceeds are less than your cost basis, it results in a capital loss.
Short-term vs. Long-term Capital Gains: The duration for which you held the cryptocurrency determines whether it is subject to short-term or long-term capital gains tax. A holding period of one year or less leads to short-term capital gains, taxed at ordinary income rates. A period exceeding one year results in long-term capital gains, which are taxed at reduced rates.
Report Your Transactions: On your tax return, report the sale of your cryptocurrency by using forms such as Form 8949 and Schedule D of the IRS Form 1040. Make sure to include any capital gains or losses.
Pay Any Applicable Taxes: After reporting, pay any taxes owed as determined by your filing. Keep records of all transactions for accurate reporting and to substantiate your tax filings.
Additional Considerations: If you experience a capital loss, you might be eligible to deduct it, offsetting up to $3,000 of other income on your tax return ($1,500 if married filing separately) with any excess being carried over to future years.
Bear in mind that tax laws and regulations related to cryptocurrencies may change, so it’s advisable to consult a tax professional or utilize reliable tax software to ensure compliance with the latest guidelines.
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