Calculating Crypto Taxes. According to IRS guidelines, all cryptocurrencies should be treated as property, not money. Because of this, cryptocurrencies are taxed similarly to other assets like real estate, stocks, and bonds. Therefore, crypto investors must report capital gains from buying and selling crypto coins. It can be used to offset their loss or gains in the case of capital gains.
The Internal Revenue Service (IRS) released more information in 2019 about the cryptocurrency taxation process. The schedule is listed below.
- August 2019
Over 10,000 taxpayers engaged in cryptocurrency transactions received tax notices (Letter 6173, Letter 6174, and Letter 6174-A).
- October 9th, 2019
In addition to information about forks and airdrops, the IRS released 43 questions and answers that expanded on the guidance notice from the 2014 question.
- October 10th, 2019
The IRS has released Schedule 1, which starts with the question, “Did you receive, sell, exchange, or otherwise have a financial interest in any virtual currency at any time during 2019?”
With a question like this, taxpayers will be more informed, and the rate of cryptocurrency voluntary compliance will rise. The IRS has an internal system that sends out notices automatically when a difference is found between the 1099-K and tax return reports. The IRS also relies on tax professionals to advise and assist taxpayers with the crypto tax filing process. The taxpayer can also benefit greatly from using crypto tax calculators.
How Do I Report My Cryptocurrency Taxes?
To prove your capital gains or losses for the year, you must file IRS Form 8949 when filing your crypto taxes. This form should have a detailed list of all your taxable crypto events. You can get online tax help from a certified tax expert with TurboTax Live from your home in Philadelphia or elsewhere in the United States.
Your crypto trades and profits should be shown on this tax form. The date it was first acquired and the initial amount it was developed for must be provided for each crypto traded or sold (in USD). This will establish your cost basis and fair market value. After this, you can calculate your capital gain or loss for all your trades.
Once you have calculated this, you must transfer your capital gains or losses to the form 1040 Schedule. When filing your crypto taxes, you must complete and submit these two forms.
But this is a very time-consuming process that is easy to mess up. To avoid this, you can use a crypto tax calculator, which calculates your crypto taxes and has extra features that can track all the historical prices and dates for each trade.
Why Can’t Exchanges Produce These Documents?
Suppose you are a trader who conducts crypto activities across multiple exchanges.
In that case, your cryptocurrency exchanges cannot provide the tax information needed to fill out Form 8949 when cryptocurrency is sent from one cryptocurrency exchange to another. The date and original price (Cost Basis) at which the cryptocurrency was acquired were also not kept track of in the two deals.
Let’s say, for example, you acquired 1 Bitcoin on the Coinbase exchange and then sent it to the Binance exchange. Ethereum was exchanged for Bitcoin on Binance. Each business has half the information required to establish your profit or loss on that trade. Binance has your Fair Market Value information, while Coinbase has your cost basis information. You can easily determine our finance tax and make the right assessment records to submit to your tax authority.
The taxpayer is responsible for maintaining the historical fiat currency (USD) price for when the crypto was first acquired and sold. Using a crypto tax calculator can greatly simplify the process and is a godsend for dealing with the cryptocurrency tax issue.
What are Some of the Best Crypto Tax Calculators?
It is one of the simplest crypto tax calculators available. TokenTax is the only crypto tax platform known to support every major crypto exchange. In addition to a crypto tax calculator, it has other tools that help you report cryptocurrency capital gains or losses and income taxes.
They can automatically import your crypto data because they connect directly to all exchange platforms. You use an exchange that doesn’t let you do this, but their platform lets you upload a file with your crypto trading data.
BearTax is thought to be a simple crypto tax calculator. The platform imports all of your crypto transaction data from over 25 major exchanges to calculate your capital gains tax and give you documents to file with your crypto taxes.
BearTax has a user interface that isn’t too hard to figure out.Also, their crypto tax calculator has specific tools built in, like “smart matching.” This tool helps you avoid hitting negative balances, which could affect your tax report accuracy.
It is an easy-to-use crypto tax calculator. Zenledger is integrated with all major exchanges and supports all major cryptocurrencies and fiat currencies.
It can calculate your crypto gains and give you a capital gains tax report, income and donation taxes, and closing taxes. They also offer profit and loss statements for your Certified Public Accountant (CPA) or tax professional.