5 Tips for Doing Your Cryptocurrency Taxes

By CryptoTrader.Tax | CryptoTraderTax | 22 Jul 2019


Paying taxes on Bitcoin and other cryptocurrencies is becoming a priority for individuals in the US after the IRS announced on July 2nd, 2018 that one of their core campaigns and focuses for the year is the taxation of virtual currencies.

 

Depending on what country you live in, your cryptocurrency will be subject to different tax rules. The questions below address implications within the United States, but similar issues arise around the world. As always, check with a local tax professional to assess your own particular tax situation. You can check out this Australia Crypto Tax Guide to learn how cryptocurrency is taxed in AUS.

 

Because cryptocurrencies are treated as property in the eyes of the law, they are subject to capital gains and losses rules just like stocks, bonds, real estate, and other forms of property.

 

The challenge with cryptocurrency in regards to taxes is that the data making up your crypto buys, sells, trades, transfers, mining income, forks, splits, air drops, wallet transactions, and other crypto activity is likely scattered across many different platforms and exchanges. This can make the tax calculation and reporting process difficult.

 

These five tips will help make the crypto tax reporting process easier and allow you to stay in the good graces of the law.

 

  1. Keep a record of every exchange that you have used to buy and sell cryptocurrencies

 

Exchange data is essential in the Crypto and Bitcoin tax reporting process. Exchanges are likely the places where you originally converted FIAT currency into cryptocurrency, and thus your cost basis is originally established here. You should have complete historical data from every exchange that you have used. Most exchanges have an option that allow you to export your complete trading history.

 

Having this data on hand will make the reporting process easy whether you are doing calculations by hand or with the help of crypto tax software.

 

  1. Keep records of any crypto that you received as income

 

Cryptocurrency that is received as income is treated differently than crypto trades for tax purposes. It’s important that you have records of income events such as mining payouts, crypto received from a job, or any other form of cryptocurrency received as income. You should keep track of the amount of crypto received as well as the date and time that you received it.

 

If you haven’t been keeping records of this data, you can use a crypto tax calculator to track down the historical data.

 

  1. Understand how to calculate your gains and losses

 

You owe taxes on what you gained from trading, so it’s important to understand how to calculate your gains. To calculate your capital gains and losses, you use this formula:

 

Fair Market Value - Cost Basis = Capital Gain / Loss

 

Cost Basis is the original value of an asset for tax purposes.  In the world of crypto, your cost basis is essentially how much it cost you to acquire the coin. 

 

Fair market value is just how much an asset would sell for on the open market. Again with cryptocurrency, this fair market value is how much the coin was worth in terms of US dollars at the time of the sale.

 

Therefore to calculate your gain or loss on each trade, you need to know at what USD value you acquired the crypto for and at what USD value you traded or sold it for. If you haven’t been keeping track of the USD value of your trades, you can use crypto tax software to crunch those numbers for you.

 

  1. Speak with a crypto tax specialist

 

If your crypto trading activity was pretty straightforward, it is likely that you will be able to handle your own tax reporting without much trouble.  However, if your situation is complicated and you don’t want to deal with the reporting process yourself, it may be helpful to speak with a Bitcoin accountant or a specialized crypto CPA. Certain accountants have become specialists in cryptocurrencies, and they work full time to help traders sort through the tax implications.

 

If you have specific questions regarding your situation, it could be beneficial to consult an accountant.

 

  1. Understand that you can save money on your tax bill by filing your crypto losses

 

When you realize a capital gain (you sold your crypto for more than you purchased it for), you owe a tax on the dollar amount of the gain.  However, when you sell (or trade) your crypto for less than you purchased it for, you incur a capital loss, and you can use this loss to offset gains from other trades or even a gain from the sale of other property like stocks in your portfolio. This can save you a substantial amount of money if you have heavy losses. 

 

While tax season isn’t the most fun time of the year, it doesn’t have to be stressful. Keep good records and leverage the crypto tax tools that are out there to seamlessly file your cryptocurrency taxes for the year.

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CryptoTrader.Tax
CryptoTrader.Tax

CryptoTrader.Tax is the easiest way to file your crypto taxes. Simply upload your trades and run your reports. Oh, you can also import everything into TurboTax :)


CryptoTraderTax
CryptoTraderTax

The goal of this blog is to make the world of cryptocurrency taxes easier!

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