Hey there, I’m Bette Hochberger, CPA, CGMA. Cryptocurrencies have become increasingly popular in recent years, with more and more people investing and trading in digital assets. However, properly reporting cryptocurrency on your taxes can be a annoying task, especially for those new to the crypto space. In today’s quickie, I’ll walk you through the steps to ensure you’re accurately reporting your cryptocurrency activities to the tax authorities.
Understanding Cryptocurrency Transactions
The first step in reporting cryptocurrency on your taxes is to understand the various types of transactions you may have engaged in over the tax year. This includes:
– Buying and selling crypto
– Receiving crypto as payment or from mining/staking
– Using cryptocurrencies to purchase goods or services
Each of these transactions needs to be properly accounted for on your tax return.
Calculating Gains and Losses
When you buy and sell crypto, you need to calculate any capital gains or losses. This is done by determining your cost basis (what you originally paid for the cryptocurrency) and your sale price. The difference between these two amounts is your capital gain or loss, which must be reported on your tax return.
Reporting Cryptocurrency Income
If you received cryptocurrencies as payment for goods or services, or from mining/staking activities, this is considered ordinary income and must be reported as such on your tax return. You’ll need to determine the fair market value of the cryptocurrencies you received at the time of the transaction.
Keeping Accurate Records
Proper record-keeping is crucial when it comes to reporting crypto on your taxes. Be sure to maintain detailed records of all your cryptocurrency transactions, including dates, amounts, and any relevant exchange or wallet information.
Filing Your Tax Return
When it’s time to file your tax return, you’ll need to report your cryptocurrency activities on the appropriate forms, such as Schedule D (for capital gains and losses) and Schedule 1 (for other crypto income). Your tax preparer or tax software can guide you through the process.
Crypto tax reporting doesn’t have to be a challenging task. By understanding the various transaction types, calculating gains and losses, and keeping accurate records, you can ensure you’re properly reporting your cryptocurrency activities to the tax authorities. Feel free to schedule a meeting with us if you have any questions or concerns!
As always, stay safe, and I’ll see you next time.
