It’s tax season, which means it’s time to start thinking about how to do your crypto taxes. Here are a few tips to help you get started.
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The Internal Revenue Service (IRS) released guidance in 2014 stating that virtual currencies, such as Bitcoin, are to be treated as property for tax purposes. This means that capital gains taxes apply to any profits you make from buying and selling cryptocurrency.
The IRS defines a capital gain as “an increase in the value of a capital asset that gives it a higher value than the purchase price.” For example, if you buy Bitcoin for $8,000 and then sell it later for $10,000, you have made a $2,000 capital gain.
If you hold cryptocurrency as an investment (i.e., you buy and hold it for the long term), then you will only be taxed on the gains when you sell or trade it. However, if you trade cryptocurrency frequently, then you may be considered a “trader” by the IRS and be subject to different tax rules.
In order to calculate your taxes owed on cryptocurrency trades, you will need to keep track of your “cost basis” for each coin. Cost basis is the original value of a coin, plus any fees or other expenses related to its purchase. For example, if you bought Bitcoin for $8,000 and paid $100 in transaction fees, your cost basis would be $8,100.
If you don’t keep track of your cost basis, the IRS will assume that your cost basis is zero (i.e., you will owe taxes on the full proceeds of any sale). Therefore, it is very important to keep track of your cost basis for each coin that you own.
There are several ways to do this, but we recommend using a Cryptocurrency Tax software like CryptoTraderTax. This software automatically calculates your cost basis and generates reports that can be imported into TurboTax or othertax preparation software.
We also recommend reading our complete guide to cryptocurrency taxes before filing your return. This guide covers everything from how to calculate your gains to what forms you need to file with the IRS.
What You Need to Know About Crypto Taxes
Cryptocurrencies have been gaining in popularity over the past few years, and with that comes the need to pay taxes on your crypto earnings. Here’s what you need to know about crypto taxes.Cryptocurrencies are taxed as property, not currency, which means they’re subject to capital gains tax.
What is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that is secured by cryptography, making it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
Cryptocurrenceis often purchased with fiat currencies, such as dollars or euros, but can also be bought with other cryptocurrencies, such as Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Monero (XMR).
What is a Hard Fork?
In the cryptocurrency world, a fork is an event where an existing cryptocurrency splits into two separate cryptocurrencies. This can happen for a variety of reasons, but most often it’s due to disagreements among developers about how to improve the underlying code of the currency. For example, a dispute about the best way to increase transaction speed might lead to a fork.
For investors, forks can be confusing and even worrying. After all, if you own one currency, and then it splits into two, that means you now own twice as much… right?
Not necessarily. It depends on the type of fork that occurs. There are two main types of forks: hard forks and soft forks.
A hard fork is a complete split from the existing cryptocurrency codebase, creating an entirely new currency. This new currency will be incompatible with the old one, which means that if you own the old currency (say, Bitcoin), you will not automatically own the new currency (in this case, Bitcoin Cash). Instead, you’ll need to exchange your old coins for new ones.
A soft fork is a less drastic change to the codebase that is still compatible with the old version of the software. This means that if you own the old currency (again, say, Bitcoin), you will also automatically own the new currency (in this case, Bitcoin Gold). No exchange is necessary.
What is an Airdrop?
An airdrop is a free distribution of cryptocurrency tokens by a project to its community. Airdrops are commonly used as a marketing tool to stoke hype and excitement around a project prior to its launch, or to reward existing holders for their continued support.
Receiving an airdrop is usually as simple as holding the required tokens in your wallet at the time of the snapshot, though some projects may require you to complete additional tasks such as participating in social media campaigns or signing up for a newsletter.
Airdrops can be an easy way to earn free cryptocurrency, but it’s important to remember that you are not actually entitled to anything just because a project decides to do an airdrop. Be sure to research the team behind any project before participating in an airdrop, and never give away your private keys!
How to File Your Crypto Taxes
It’s tax season, which means it’s time to start thinking about how to file your crypto taxes. If you’re not sure where to start, don’t worry – we’re here to help. This guide will cover everything you need to know about filing your crypto taxes, from calculating your gains to choosing the right software. Let’s get started.
How to File Your Taxes if You’ve Traded Crypto
If you traded cryptocurrency in the last year, you likely have a tax liability. Here’s a guide on how to file your crypto taxes.
Cryptocurrency trading is a taxable event. If you traded cryptocurrency in the last year, you likely have a tax liability. Whether you traded on an exchange or used a peer-to-peer platform like LocalBitcoins, you will need to report your gains or losses on your taxes.
The Internal Revenue Service (IRS) released guidance in 2014 that said Bitcoin and other cryptocurrencies should be treated as property for tax purposes. That means any gains or losses from trading cryptocurrency are subject to capital gains taxes.
If you made money from trading cryptocurrency, you will need to report it as income on your taxes. The amount of tax you owe will depend on your tax bracket and whether you made a short-term or long-term gain. Short-term gains are taxed at your marginal tax rate, which is the rate you pay on your last dollar of income. Long-term gains are taxed at a lower rate, which is 20% for most taxpayers.
If you lost money from trading cryptocurrency, you can deduct those losses on your taxes. You can deduct up to $3,000 in capital losses each year or carry forward any losses to future years.
To deduct your losses, you will need to fill out Form 8949 and attach it to your tax return. You will also need to file Schedule D if you have more than $1,500 in total capital gains or losses for the year.
Reporting your crypto trades on your taxes can be complicated, so it’s important to keep good records of all your trades throughout the year. Many exchanges do not provide users with complete transaction histories, so it’s important to keep track of all your trades yourself. There are several software programs that can help with this, such as Bitcoin Tax and CoinTracking.info.
How to File Your Taxes if You’ve Mined Crypto
Cryptocurrency miners have to pay taxes on their earnings, just like everyone else.
If you’ve mined cryptocurrency, you need to report it as income on your tax return. How much tax you pay depends on how much money you made mining.
The process for filing your taxes will vary depending on where you live, but in most cases, you’ll need to report your earnings from mining as self-employment income. This means that you’ll need to pay both income tax and self-employment tax on your earnings.
When it comes to paying taxes on your mining earnings, it’s important to keep accurate records of all the money you’ve made. Most cryptocurrency exchanges will provide you with a 1099-K form, which will show how much money you’ve made from mining. You can use this form to help calculate your taxable income.
Paying taxes on cryptocurrency can be a complicated process, so it’s important to seek out professional help if you’re unsure of how to file your return. An experienced accountant or tax attorney can help you navigate the process and make sure that you’re compliant with the law.
How to File Your Taxes if You’ve Received Crypto as Payment
Whether you’ve been paid in Bitcoin, Ethereum, Litecoin, or any other cryptocurrency, you will need to report it come tax season. Here’s how to file your crypto taxes.
If you’ve been paid in cryptocurrency, you will need to report it as income on your taxes. Depending on the amount you’ve been paid, this could be considered taxable income, and you will need to pay taxes accordingly.
There are a few different ways that you can report your cryptocurrency income. The most important thing is to make sure that you are accurate in your reporting, as this could potentially lead to an audit from the IRS.
The first way to report your cryptocurrency income is by converting it into US dollars on the day that you receive it. This method is simple and straightforward, but it may not be entirely accurate if the value of the currency fluctuates significantly after you receive it.
Another way to report your cryptocurrency income is by using the fair market value of the currency on the day that you receive it. This method is more accurate, but it can be more difficult to calculate if the value of the currency fluctuates often.
Regardless of which method you choose, you will need to keep track of all of the transactions that you make in order to properly report them on your taxes. This includes both buying and selling cryptocurrencies, as well as using them to purchase goods or services.
We’ve come to the end of our guide on how to do your crypto taxes. We hope that this has been helpful in getting you started on understanding and preparing your crypto tax return.
Remember, when it comes to crypto taxes, it’s important to stay up to date with the latest news and developments. The tax landscape is always changing, and new guidance from the IRS can come out at any time.
If you have any questions about how to do your crypto taxes, we encourage you to speak with a tax professional. They can help you navigate the complexities of the tax code and ensure that you are compliant with the latest rules and regulations.