About Cryptocurrency Transactions
When the IRS announced The Virtual Currency Compliance campaign, paying cryptocurrency taxes became a priority for investors and innovators in the cryptocurrency space. Under the law, Virtual currency is considered property for federal tax purposes. In other words, the digital coin is treated as real estate property and is subject to capital gains and losses.
Since the announcement, people inside the cryptocurrency space have been finding ways to make it easier for them to file their tax reports on their cryptocurrency transactions. People buy, sell, trade, mine, transfer, split, and fork cryptocurrency, to name a few. Keeping up with all of them can be challenging.
Fortunately, there are practical ways to deal with this challenge and make your cryptocurrency tax report an easier feat. Here are the top five tips that you need to consider.
Take Note of Every Activity
One of the most practical things you can do to make cryptocurrency tax reports easier is to keep a record of every cryptocurrency transaction. Most exchange platforms keep a record of your activity, but if your digital currency activities happen within various platforms, keeping track of each one should be an intentional act on your end.
When organizing your tax report, you can use crypto tax software to help you with the calculations. You can export data from cryptocurrency platforms to the tax software, and organize your old files there.
Talk To Your Employer About Cryptocurrency Income Tax
The income you receive in cryptocurrency is taxed differently compared to those that you get from mining or exchanges. After listing down every salary and profit you’ve received, your employer must report these earnings on W-2 forms, which can be obtained from the IRS.
This report involves the conversion of cryptocurrency to US Dollars and the organization of the date of payments. Cryptocurrency income is subject to the same withholding tax as the wages received in US Dollars.
Understand Capital Gains Tax and Learn How To Calculate It
If trading cryptocurrencies is one of the main transactions you do within the digital currency space, then you must understand and know how to calculate capital gains tax.
Capital gains taxes are applied to stocks and real estate property. After the IRS tax campaign on digital currencies, crypto-assets now fall in the same tax category.
The capital gain refers to the money you make on the sale of these assets, and the money you lose is the capital loss. The difference between both is called the net capital gain. Capital gains taxes, like income taxes, are progressive.
Talk To Your Cryptocurrency Lawyer
Having a deep understanding of your cryptocurrency tax is very important, and it’s a conversation you should have with your cryptocurrency lawyer.
If you’re dealing with simple crypto-transactions, you can probably handle your taxes on your own. But if you’re exchanging in multiple platforms, and are dealing with various transactions, then it’s time to seek some expert help, and save yourself from much stress.
These professionals can help you understand how taxes are applied in your particular situation, they can help you make sense of the data you’re getting from crypto-asset reports, and they can help you find ways to manage your cryptocurrency taxes better.
Identify How to File Your Cryptocurrency Taxes
The proper way to report your cryptocurrency taxes is to fill out your IRS forms 8949, and 1040 Schedule D.
Listed in the form 8949 are your cryptocurrency transactions from trading to sales with the corresponding date when these transactions occurred. In the form, you should also list down cost basis and your gains and losses. After calculating your total at the bottom, take the amount and transfer it to your 1040 Schedule D.
To get a more detailed explanation about your cryptocurrency tax, and how to file your tax report, reach out to your cryptocurrency lawyer today.