As a United States citizen, it is important to understand the tax implications of owning and selling Cardano (ADA), or other cryptocurrencies. The Internal Revenue Service (IRS) views cryptocurrencies as property, rather than currency, which means that any gains or losses from the sale of Cardano (ADA) will be subject to capital gains tax.
When it comes to calculating the capital gain or loss on the sale of Cardano (ADA), it is important to keep accurate records of the purchase price and any expenses related to acquiring and holding the cryptocurrency. This includes any transaction fees, storage fees, or other expenses incurred while owning the cryptocurrency.
If you have held Cardano (ADA) for less than a year, any gains will be subject to short-term capital gains tax, which is currently taxed at the same rate as your ordinary income. However, if you have held Cardano (ADA) for more than a year, the gains will be subject to long-term capital gains tax, which is currently taxed at a lower rate than short-term capital gains tax.
It’s also worth noting that capital losses can be used to offset capital gains and lower your overall tax liability. So, if you have any losses from the sale of Cardano (ADA) or other cryptocurrency, it’s important to keep track of those as well.
In addition to capital gains tax, you may also be subject to self-employment tax if you are using Cardano (ADA) or other cryptocurrencies as a form of business or trade. This tax applies to any income earned from such activities and is currently set at a rate of 15.3%.
It’s also important to note that some states have their own cryptocurrency tax laws and regulations, so it’s important to check with your state tax agency to determine if there are any additional taxes that may apply.
When it comes to reporting your cryptocurrency transactions to the IRS, it’s important to use Form 8949 and Schedule D of your Form 1040. Form 8949 is used to report capital gains and losses from the sale of property, including cryptocurrencies, and Schedule D is used to summarize the information from Form 8949 and report it on your Form 1040.
It’s worth mentioning that in 2019, the IRS issued guidance stating that virtual currency miners are subject to self-employment tax on the income derived from those activities. Therefore, if you are mining Cardano (ADA) or other cryptocurrencies, you may be subject to self-employment tax on the income generated from mining.
Additionally, It’s important to note that the IRS has been cracking down on tax noncompliance related to virtual currencies in recent years. They have been using various methods such as sending warning letters to taxpayers who might have failed to report their virtual currency transactions, and have also been using third-party data providers to identify taxpayers who might be underreporting or not reporting their virtual currency transactions.
In conclusion, as a United States citizen, you will be subject to capital gains tax when selling Cardano (ADA) or other cryptocurrencies. The rate at which you will be taxed will depend on how long you have held the Cardano (ADA) and you may also be subject to self-employment tax if you are using Cardano (ADA) or other cryptocurrencies as a form of business or trade or if you are mining it. It is important to keep accurate records, consult with a tax professional, and check the state tax laws to ensure compliance with all applicable tax laws and regulations. Additionally, it’s important to keep in mind that the IRS has been actively enforcing compliance with virtual currency tax laws, so it’s essential to report your virtual currency transactions correctly and timely.