Do you own cryptocurrency? Perhaps you invested in Bitcoin some time ago when its cost was around $100. Or maybe you joined the crypto game late and could only buy some Ethereum, only to use it to gain some profit quickly.
In both cases, your crypto trading may be influenced when you file your taxes this time around. For better or worse, certain tax rules and regulations are now applied to cryptocurrencies such Ethereum and Bitcoin.
The Internal Revenue Service (IRS) is now treating all cryptocurrencies as potential capital assets, and the owners have to pay taxes if they want to sell them. Cryptocurrency taxes come with a couple of additional twists.
If you buy services or products with cryptocurrency, your purchase is considered a sale of that particular cryptocurrency. It means you have to pay capital gains taxes if the value of your coins increases.
If you earn cryptocurrency by mining it or receiving it in the form of payment for services or goods, it counts as a fraction of your regular taxable income. You are liable to pay crypto taxes on the entire fair market value of the cryptocurrency the moment you receive it, at your standard income tax rate.
It’s never too late to file your taxes for crypto. Here are 4 ways of doing your taxes for cryptocurrency:
1. Keep Track Record of Your Transactions
You must track all your cryptocurrency investments and transactions. It includes how much you have bought crypto for, how long you kept it, and how much money you earned from its sale-as well as the transaction receipts.
While you are provided with a 1099-B reporting by your crypto exchange, it might not contain the original amount that you paid for it.
2. Fill Forms Properly
Once you have all the records of your transactions with you, the next thing you need to do is fill the taxes forms properly.
Some of these forms are Form 8949, Schedule 1, Schedule C, and Schedule D, depending on how you used your cryptocurrency. So be careful with that!
3. File Your Taxes
If you are using software like CoinTracker to keep your records, you have an option to get connected with online tax software of your choice. Then with the help of this online tax software, you can file your overall federal tax returns. For traders looking for quick services, Token Tax is the one that provides the solution to their tax filing problems.
4. Hire A Professional
Doing taxes for cryptocurrency can be tricky, particularly when the laws are constantly changing. If you have earned a large amount of money from cryptocurrency, you should hire a certified professional like your accountant to deal with your taxes. It’s wise to file your cryptocurrency taxes carefully next time. We hope this blog helped you understand why it is important for you to file your cryptocurrency taxes timely. Happy Trading!