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How To Do Crypto Taxes

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Do I Owe Crypto Taxes

How To Do Your Crypto Tax FAST with Koinly – 2021

In the U.S., crypto is considered a digital asset, and the IRS treats it generally like stocks, bonds, and other capital assets. Like these assets, the money you gain from crypto is taxed at different rates, either as capital gains or as income, depending on how you got your crypto and how long you held on to it.

To understand if you owe taxes, its important to look at how you used your crypto in 2021. Transactions that result in a tax are called taxable events. Those that dont are called non-taxable events. Lets break them down:

Not taxable

Taxable as capital gains

  • Selling crypto for cash: Did you sell your crypto for U.S. dollars? Youll owe taxes if you sell your assets for more than you paid for them. If you sell at a loss, you may be able to deduct that loss on your taxes.

  • Converting one crypto to another: When you use bitcoin to buy ether, for example, you technically have to sell your bitcoin before you buy a new asset. Because this is a sale, the IRS considers it taxable. Youll owe taxes if you sold your bitcoin for more than you paid for it.

  • Spending crypto on goods and services: If you use bitcoin to buy a pizza, for example, youll likely owe taxes on the transaction. To the IRS, spending crypto isnt that much different from selling it. You need to sell the asset before it can be exchanged for a good or service, and selling crypto makes it subject to capital gains taxes.

Taxable as income

Good news for hodlers

If You Exchange One Type Of Cryptocurrency For Another

Cryptocurrency enthusiasts often exchange or trade one type of cryptocurrency for another. For example, say you have $1,000 worth of Litecoin and exchange it for $1,000 worth of Ethereum. If you originally paid $300 for the Litecoin, you have to recognize a $700 capital gain when you make the exchange. You established a $300 basis at the time of purchase for your original Litecoin position but recognized a $700 capital gain as a result of the coins appreciation between your purchase and the exchange for Ethereum. Your Ethereums basis is its fair market value at the time of exchange, making your new cost basis $1,000 after paying the $700 capital gain on the exchange.

It’s important to note that all of these transactions are referenced back to United States dollars since this is the currency that is used for your tax return. So, even if you buy one cryptocurrency using another one without first converting to US dollars, you still have a taxable transaction.

How To Keep Up With Crypto Taxes

Over the last few years, a lot of different software tools have been created to help individuals track crypto taxes. This is important, because in a decentralized ecosystem, you wont necessarily get tax documents that you can use to file your taxes .

According to Kemmerer, CoinLedgers CryptoTrader.Tax is a cryptocurrency tax-reporting platform that “integrates across the entire Web3-economy and gives crypto investors a holistic view of their digital asset portfolios.” It not only helps them easily keep track of their holdings, but it also allows them to confidently and accurately prepare and pay their taxes,” he says.

If individuals want to see what their taxable crypto income might look like, they can sign up for CryptoTrader.Tax and connect their cryptocurrency platforms directly.

“Whether users are trading cryptocurrencies, buying and selling NFTs, or staking on DeFi protocols, CryptoTrader.Tax makes tracking their portfolio and related taxes as straightforward as possible,” says Kemmerer.

Attorney Asher Rubinstein of Gallet Dreyer and Berkey also points out that crypto platforms like Celsius, Coinbase and Gemini issue Forms 1099s, which indicate how much taxable income you need to report on your tax return. However, he also says keeping records of crypto transactions is essential, whether you are buying, selling or HODLing. Why? Because the IRS could ask for them.

Your best bet? Count your blessings, pay your taxes, and move on.

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What Are The Steps To Prepare My Tax Reports

Step 1: Register your account in Crypto.com Tax

Step 2: Select the tax settings youd like to generate your tax reports. You may refer to this section on how to set up your tax settings page.

Step 3: Go to the Wallets & Exchanges page and import your transactions by the following methods:

  • Import our Generic CSV Template

  • Go to the Transactions page and manually add your transactions

  • Step 4: Review your tax calculation on the Transactions page, and make amendments if necessary. You can also click on each transaction to view the calculation in detail. You may refer to this article on how to edit a transaction.

    Step 5: Generate tax reports below on the Tax Reports page:

  • Capital gains/losses CSV file, including the number of Proceeds, Cost basis, Selling expense, and Capital gain/loss

  • Transaction history CSV file to keep books and records

  • Income report to keep track of cryptocurrency you received

  • Gifts, donations & payments report keeping records of all cryptocurrency you sent

  • Expenses report keeping track of particular fee charges

  • Step 6: You may use the information in the downloaded tax reports to prepare your official tax forms

    Crypto Taxes In 202: Tax Rules For Bitcoin And Others

    Did You Trade Crypto Last Year? Chances Are You Owe the IRS

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    With cryptocurrency such as Bitcoin, you can run afoul of the IRS in a few surprising ways, so it pays to learn the rules.

    The big picture? Digital assets that you buy, sell, mine or use to pay for things can be taxable. Also, if your employer or client pays you in crypto, that payment is taxable income. You report your transactions in U.S. dollars, which generally means converting the value of your cryptocurrency to dollars when you buy, sell, mine or use it.

    » Worried about crypto taxes? Find the right crypto tax software program for you

    Heres how crypto taxes work:

    Recommended Reading: How File Old Tax Returns

    What Are Fractionalized Nfts Used For

    Right now, part of the reason there is friction between crypto becoming mainstream is the lack of accessibility. Fractionalized NFTs aim to reduce this by increasing the opportunity for more people to participate in the NFT space. As an example, lets say a Bored Ape is worth 100 ETH. That would be considered a sizeable, and likely unachievable, investment for most people. If that Bored Ape was fractionalized into 1000 pieces however, users could become part-owners for a mere 0.1 ETH. This would allow them to experience the NFT world and all its benefits without the hefty price tag.

    In a more real world example, there is a lot of discussion about how fractionalized NFTs could contribute to the real estate market. If real estate agreements were replaced by smart contracts executed on the blockchain, then fractionalized NFTs would enable multiple people to buy a single property. In such a competitive market where housing prices are at an all-time high, this makes becoming a part of the real estate industry much more accessible. It would also mean that the owners of these real estate fractionalized NFTs would also reap a portion of the rewards. Lets say 5 people buy into a property using smart contracts and fractionalized NFTs. They then put that property up for rent. Each NFT holder would then receive a fifth of the rental income each month.

    Crypto Tax Guide For Australia 2022

    Cryptocurrency taxes are no laughing matter. Youve been paying them for years thanks to the 2017 Australian government budget, it seems youll also be paying them for years to come. Dont worry read this Crypto Tax Guide for Australia 2022-23 to know it all!

    Taxable income is any income your cryptocurrency holdings generate, including trading and mining. For example, if you have mined Bitcoin worth US $1000, this would be taxable income under Australian law.

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    How To Mine Litecoin Dogecoin And Other Alt Coins

    BCH, DOGE, LTC and more all work in a similar way when it comes to mining. They all use the proof-of-work process, so you’ll need similar equipment including:

    • A GPU or ASIC rig in most instances. This isn’t always the case as you can mine less intensive coins like DOGE with less powerful PCs.
    • Power supply – whatever you mine you’ll use up a lot of electricity. In some instances like with lower value coins, it’s definitely worth using a crypto mining calculator to ensure it’s worth your while to mine if you have high electricity costs.
    • Dedicated mining software – each different coin uses a slightly different proof-of-work process, so each coin will have different software for mining. Like with Bitcoin mining software, there’s a lot of options out there – so do your research to find the best suited to your experience and technical capabilities.

    Why Is Bitcoin Valuable

    How To Do Your Crypto.com Tax FAST With Koinly – 2022

    Part of what makes Bitcoin so valuable is its scarcity. Bitcoins maximum supply is limited to 21 million coins. Currently, there are 19 million coins in circulation.

    To create supply, Bitcoin rewards crypto miners with a set Bitcoin amount. . To keep the process in check, the rewards given for mining Bitcoin are cut in half almost every four years.

    Also Check: How To Fill Out Tax Form 8962

    Does Coinbase Report To The Irs

    Coinbase was the subject of a John Doe Summons in 2016 that required it to provide transaction information to the IRS for its customers. As a result, the company handed over information for over 8 million transactions conducted by its customers.

    Today, the company only issues Forms 1099-MISC if it pays out rewards or bonuses to you for taking specific actions on the platform. Further, you may need to exceed the $600 minimum payment threshold for the company to issue both you and the IRS a Form 1099-MISC documenting their payments to you.

    However, starting in tax year 2023, the American Infrastructure Bill of 2021 requires crypto exchanges to send 1099-B forms reporting all transaction activity.

    Even though Coinbase doesnt supply this information through direct reporting to the IRS, you still must report this activity on your tax return as it is taxable income. You can access account information through the platform to calculate any applicable capital gains or losses and the resulting taxes you must pay on your tax return.

    What Is A Disposition

    This refers to the way you get rid of something, such as by giving, selling or transferring it. In general, possessing or holding a cryptocurrency is not taxable. But there could be tax consequences when you do any of the following:

    • sell or make a gift of cryptocurrency
    • trade or exchange cryptocurrency, including disposing of one cryptocurrency to get another cryptocurrency
    • convert cryptocurrency to government-issued currency, such as Canadian dollars
    • use cryptocurrency to buy goods or services

    Also Check: How To Upload Tax Documents

    Finding Your Cost Basis For Cryptocurrency Taxes

    To determine if you have a profit or loss for each transaction you’ll need to know your cost basis. In plain English, your cost basis simply refers to how much you paid for a cryptocurrency in U.S. dollars when you acquired the cryptocurrency.

    Technically, your cost basis for any capital asset is your cost plus any improvements. In the case of cryptocurrencies, because you haven’t made any improvements, your cost basis is equal to your acquisition price. For example, if you purchased a Bitcoin for $1,000, your cost basis is $1,000.

    To take that example a step further, if you purchased Bitcoin for $1,000 and a year later you exchanged it for Ethereum, you’ll need to know the price of Bitcoin and Ethereum at the time of the trade. Let’s say Bitcoin was a $2,000 at that time you traded your bitcoin for $2,000 of Ethereum. In this example, you would have a $1,000 in long-term capital gains on your Bitcoin trade and a cost basis of $1,000 for the Ethereum you acquired.

    How To File Your Crypto Tax Returns

    This guide reviews platforms that provide crypto trading tax services ...

    The volatility of the crypto market means that it can sometimes seem impossible to calculate the amount of tax you own. Volatility makes the market move, and theres almost no market as volatile as cryptocurrency is.

    One workaround for this is to use your platform’s PnL calculator. Most popular centralized exchanges like Binance and Gate.io have this feature.

    The PnL calculator shows your profit and loss over a specific period, which you can set. This calculator removes a lot of the guesswork when it comes to calculating your capital gains tax.

    Rather than going through all your trades over a particular period when you file your tax returns, you can use the PnL to determine exactly how much money you’ve made in profit.

    Due to capital gains being taxed on profit alone, as opposed to everything involved in the trade, once you figure out the total profit you’ve made, all you have to do is calculate the amount of tax on it.

    The easier way to go about this is to go to a third-party crypto tax software or program and have them do the work for you. One example of this is CryptoTrader which helps you track all of your taxable crypto holdings and makes filing your tax returns that much easier.

    Depending on how much you’ve made and how averse you are to do your crypto tax filing, it might be a far better use of your time to hire a professional to do the work for you.

    Read Also: What Documents Do I Need For My Taxes

    Trading Cryptocurrency For Another Type Of Cryptocurrency

    Generally, when you dispose of one type of cryptocurrency to acquire another cryptocurrency, the barter transaction rules apply. You have to convert the value of the cryptocurrency you received into Canadian dollars. This transaction is considered a disposition and you have to report it on your income tax return. Report the resulting gain or loss as either business income or a capital gain .

    I Mine Bitcoin How Is This Taxed

    The value of the Bitcoin mined is reported as income based on the coins fair market value at the time you successfully mined a block. The IRS addressed this in Notice 2014-21,

    Q-8: Does a taxpayer who mines virtual currency realize gross income upon receipt of the virtual currency resulting from those activities?

    A-8: Yes, when a taxpayer successfully mines virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.

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    Include Form 8949 With The Form 1040 Schedule D

    The Form 8949 is included with the Form 1040 Schedule D, which reports your overall capital gains and losses. On this form, you list your totals for short-term and long-term capital gains and losses separately, as they receive different crypto tax rates.

    The Schedule D also includes gains and losses from Schedule K-1s from any businesses, estates, and trusts. It also is where you will report crypto capital losses carried forward from previous years or those that you wish to carry forward to future years.

    What Happens If I Made A Loss

    How To File Your Australian Crypto Taxes On myTax!

    Even if you only made a loss, you still have to report it on your tax return. In fact, its in your best interest to report your losses. This is one of the best ways to reduce your crypto taxes you might be eligible to claim a capital loss on your tax return.

    Again, its best to seek the advice of a registered tax agent. If you go it alone, without being 100% across what youre doing, it could cost you hundreds or even thousands of dollars!

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    Next You Need To Include Your Totals In The Aggregate Boxes At The Bottom Of The Form

    • Total Proceeds: the sum of your transaction sales prices.

    • Total Cost or other basis: the sum of your transaction acquisition prices.

    • Total Adjustment, if any, to gain or loss: Typically, you will not have any adjustments. If you do have adjustments, the total would be reported here without any accompanying description.

    • Total Gain or : the sum of your transaction capital gains or losses.

    If you were trading large volumes of crypto, your cost basis and proceeds totals may seem larger than you expected. This is normal, as they are the sum of all cost basis / proceeds. For example, you could trade $10,000 of BTC back and forth multiple times with little gain or loss and still have a large amount of total cost basis / proceeds.

    How Does The Ato Know About Your Crypto

    Etax clients often ask us, how does the ATO know about my crypto? And some people ask why they received a letter asking them to declare their crypto taxes .

    If you have an account with any Australian cryptocurrency provider, then its very likely that the ATO already has your data. The ATO could even have your crypto transaction data from as far back as 2014. The ATO has information you provided when signing up to Australian crypto exchanges or wallet providers. And the ATO is constantly increasing the number of sources and types of data they can legally get hold of. Owning crypto, and even using foreign coin exchanges, does not mean you can hide money or earnings from the ATO.

    The ATO is getting very serious about tracking cryptocurrency, which means, people who did not do it right could face big ATO debts in the future.

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