Crypto earnings are not passive income
I see a ton of Youtube titles that exclaim ‘passive income’ when it comes to crypto.
As of this writing, the US tax code does not classify earnings from crypto as passive income. Sure, ‘passive income’ when expressed in plain English just means income made as an aside, but I do believe most tubers are using the term as one would use it to describe actual bone fide ‘passive income’ as defined by the IRS.
First off, I am not a tax advisor, so only take my words with a grain of salt: do your own research and do seek professional tax council. That said, it’s interesting to note how little the IRS deems ‘passive income.’
The best example are rents gathered from property ownership. This remains the classic form of ‘passive income,’ and although crypto has been lumped into the ‘property’ box along with Real Estate, it certainly does not get treated from a tax stand-point as ‘passive income’ come tax day.
Generally, gains from crypto are treated as capital gains, and depending on your situation, this is mostly unfavorable as compared to something like true ‘passive income’ as defined by the IRS. Your country, if not in the US, will obviously have its own flavor of this, but it’s likely to be quite similar everywhere. (Though New Zealand, I believe, has some favorable numbers when it comes to capital gains.)
So, let this be a small caution to those who keep seeing the words ‘passive income’ floating around when it comes to crypto. Don’t make the mistake and think it means something official; it doesn’t. Do your research and make sure you understand the consequences of those gains and losses that crypto traders will certainly be making this year.