With US Tax Season Around the Corner, Here’s How to Report Crypto Activity to the IRS – Finance Bitcoin News

The key to correctly reporting taxes on crypto currency is excellent record keeping, using IRS tax forms, and knowing what is considered income versus capital gains.

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Although the traditional April 15 deadline for U.S. tax returns is on 17. May is postponed, there is no time like the present to organize crypto-currency accounting.

Currently, all cryptocurrency transactions are taxed in one constellation or another, so it’s crucial to become familiar with the nuances to ensure you fill out the associated tax forms correctly. To give you insight into how to simplify the application process, Bitcoin.com asked Shane Brunett, CEO of Cryptotaxcalculator, for advice.

How cryptocurrency works

Just as the sale of stocks can result in a positive return, requiring capital gains tax to be paid, cryptocurrencies work the same way. However, the exchange of cryptocurrencies for a denomination currency is only one type of taxable event.

According to Brunette,

Transactions involving the trading of cryptocurrencies trigger an estate tax event, while transactions such as birddrops and bets are classified as income. It is important to note that you can only use capital losses to discount a maximum of $3,000 of any cryptocurrency income.

This means that converting a crypto-currency into a Jiata currency, another crypto-currency, or using a crypto-currency to buy goods and services can be considered a capital gains event. As for tax rates, it depends on how long the cryptocurrency has been stored.

For short-term transactions or activities (less than one year), all profits are taxed at the personal income tax rate. Cryptocurrencies held for more than a year will likely be taxed at a lower rate, between 0% and 20%, depending on the individual’s income tax bracket.

Whether crypto income is treated as income rather than capital gains

As mentioned above, not all crypto transactions fall under capital gains. There are many other possible activities that could qualify as income.

This includes all income from mining cryptocurrencies, cash pooling, placement and validation of nodes, interest income from decentralized (definitive) financial loans, and receiving payments for goods and services at cryptocurrency prices.

If income is earned from any of the above activities, it is taxed at the same rate as the person pays on other income in the year.

Distinctions, awards and gifts

Just like mining rewards and bets, crypto-birddrops, rewards, gifts and even bug bounties are also considered crypto income. Since all these activities result in income from the crypto-ecosystem, they fall under the income tax category and are not treated as capital gains or losses.

Retrieving records fromtransactions

Due to the lack of consistency across platforms, traction information can be completely basic or easily confused. It is therefore very important to keep good records and to ensure that all transactions can be consolidated into one report, which will greatly simplify the submission process.

The brunette from Cryptotaxcalculator adds the following valuable practical tips,

Pay attention to the costs. You’ll be surprised how quickly this can generate significant savings. If the fee is paid in crypto, you should also consider capital gains/losses on the fee itself.

Forms to be prepared

Once all cryptocurrency transactions in 2020 have been completed and determined to be capital gains or income, the filing process can begin. Depending on the type of transaction, you may need to fill out several forms.

By Shane Brunette,

Form 8949 and Schedule D are used to report capital gains, but if you have transactions that are classified as income, you must also complete Schedule 1 (Form 1040).

Some final tax considerations

As access to the cryptocurrency ecosystem becomes easier, taxable shares grow with it. Fortunately, filing a crypto currency tax return is easier than ever, and organization is an essential part of this effort. In his latest practical advice, Brunett concludes that the best preparation begins with excellent record keeping.

Keep your records up to date throughout the year. Even a moderate business activity can quickly add up to hundreds of transactions, and the IRS requires you to record everything in US dollars. If you take the time at the beginning of the year to set up automated tax software, it will be easy to fill out your return when it’s time for taxes.

Do you plan to do your taxes on cryptocurrencies yourself or have an accountant do it for you? Let us know your comments in the section below.

Photo credit: Shutterstock, Pixabay, Wiki Commons, Currency analysis

Denial: This article is for information only. It is not a direct offer or invitation to buy or sell, nor is it a recommendation or endorsement of a product, service or company. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author shall be liable, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services referred to in this article.

frequently asked questions

How do I declare cryptocurrencies on my taxes?

In the United States, you must report your taxes on cryptocurrencies on IRS Form 8949, Schedule D, and, if applicable, Schedule 1 and/or Schedule C of Form 1040.

Do cryptocurrencies have to declare taxes?

Regardless of how you handled cryptocurrencies last year, you should include this information in your 2020 tax return. And for those who have earned income from virtual currency – whether selling it for profit or paying for work in crypto currency – not reporting it can come back like a boomerang.

Will Coinbase report to the IRS in 2020?

If you received a Form 1099-B and did not report it, the same principles apply. Similarly, Coinbase, Kraken and other US exchanges report to the IRS. So if you receive a tax form from an exchange, the IRS already has a copy and you need to make sure you report it to avoid tax assessments and penalties.

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