CRYPTOCURRENCY TAXES TIPS


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.

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 WHERE YOU HAVE BOUGHT OR SOLD CRYPTOCURRENCY
bitcoin tax
Make a list of every cryptocurrency exchange you used within the past tax year. | Source: Shutterstock
Exchange data is essential in the crypto 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 allows 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.

2. MAINTAIN 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 Bitcoin 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.

3. LEARN HOW TO CALCULATE GAINS AND LOSSES ON BITCOIN AND CRYPTO INVESTMENTS
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.

4. 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.

5. SAVE MONEY ON YOUR US TAX BILL BY REPORTING YOUR CRYPTO LOSSES
bitcoin crypto tax
Don’t be ashamed to report your crypto losses. They could save you money on your US tax bill. | Source: Shutterstock
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 Bitcoin tax tools that are out there to seamlessly file your cryptocurrency taxes for the year.

source of news : shutterstock5