Understanding Crypto Taxes - Don't Let the FUD Scare You

Understanding Crypto Taxes - Don't Let the FUD Scare You

By bettercallpaul | Better Call Paul | 8 Jan 2021


Understanding Crypto Taxes - Don't Let the FUD Scare You

by

William P. Alexander 

for 

Better Call Paul Blog



Hey Everyone! 

After seeing a few articles on here regarding Coinbase and other US-based cryptocurrency companies and their plans to tax or report profit/loss to the IRS for their customers, I just wanted to write a quick note to put your minds at ease.  

The solution is really, really simple.  You just need to make sure that you keep an accurate record of your crypto transactions and calculate the profit or loss you've received on each one, and then file form 8949.  This IRS form is used to report nontraditional capital profit and losses, and is what the IRS has designated for use in reporting crypto earnings/losses on your tax return. 

The form can be found here:  https://www.irs.gov/pub/irs-pdf/f8949.pdf 

This is the form for tax year 2020, meaning that it is the proper one to use when you file your taxes this year in 2021.  

This is what the form looks like: 

1518523b0dffcd68eab7cd87a8ae9cef1cc7c0063e3ef365a1719bdb2dafb4c4.png

This is a screenshot, so it didn't capture the entire form.  You can use the link above to download the actual form you need to use when filing your taxes. 

All That's Well and Good, but What if I Want to E-File My Taxes? 

Obviously, you can only use the printed/paper form 8949 if you are going to file a paper return.  Fortunately, there's great news here, as well!  

Almost every major e-file provider -- from HR Block to TaxAct to TaxCut to FreeTaxUSA to TurboTax -- they all provide the capability to enter the corresponding profit and loss in electronic format, which would be used to electronically file your return.  It's just like reporting capital gains and losses or business income.  

How Do You Know All of This, Mr. Better Call Paul? 

I am a paralegal with 13 years of experience in dealing with strange tax situations.  I usually don't offer my assistance about legal issues on this forum, but since tax season is about to start and there are articles everywhere discussing the plans of US-based companies to report crypto earnings to the IRS, this was an extenuating situation that I thought my expertise could be of service.  So, I just wanted to write a quick piece providing the necessary information and form to put any fear you all may have to rest.  

Also, and this is unprecedented for me -- if you have a question, you can feel free to email me at bettercallpaullaw@protonmail.com.  I will not charge anyone for pointing you in the right direction, so don't worry about that.  Also, this is not an invitation to seek unfettered legal support from me, so please consider that this is just a courtesy I am offering in regards to helping anyone who needs it to figure out their crypto-related tax liability or credits.  And the type of crypto doesn't really matter -- remember that.  It doesn't matter if it is BTC, Maker, ETH, Polkadot, LTC, BCH, or anything else -- it's the US dollar amount you make that they are interested in. 


Here's a quick example:

The IRS expects you to report fiat earnings or losses from crypto.  That means, when you sell your Bitcoin, let's assume you made $500 more than you invested initially.  You would report the sale from BTC to USD and the profit of $500, not the entire value of your holdings.  You would be required to pay taxes on that $500.  Now, if you lost $350 on another sale, then you would include the loss of $350, meaning that you would only owe taxes on the remaining $150 from the initial $500 profit.

On the flip side, if you lost more than you profited, you can apply the loss to your overall tax liability, which would either reduce the amount you owe in taxes or could potentially even increase your refund due.  Also, if still have a net loss after applying said loss to your tax liability, you can carry that loss forward next year to reduce any tax liability you have in the next year.  This is called a capital loss carryforward, and the part of the tax code that allows this was at the heart of the dispute over President Donald Trump only paying $750 in taxes one year and for two other years $0 -- because he carried forward an almost billion-dollar loss to future years.  The exact same process applies to the situation I have described. 


Have a wonderful day, everyone...and remember, that link again is: 

https://www.irs.gov/pub/irs-pdf/f8949.pdf

and my email:  bettercallpaullaw@protonmail.com

Good day to you all!


Image Credits:  

1.  (Cover) CoinTelegraph.

2.  My own work (Screenshot of form).

bettercallpaul
bettercallpaul

Winner of the Publish0x 100K writing contest, I am a seasoned freelance creative writer with over a decade of writing and journalism experience. I love to write, cook, and learn new things. I look forward to contributing relevant content.


Better Call Paul
Better Call Paul

A multi-topic blog focusing on legal and technology topics. All published content is intellectual property and copyright protected under federal laws. Copyright is held by the author, W. Paul Alexander.

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