The cryptocurrency market is exploding. If you are one of the people who have made a fortune in cryptocurrency, or if you are just getting started with cryptocurrency investing, then there is something you need to know about cryptocurrency taxes.
The IRS has decided that cryptocurrency will be treated as property for tax purposes. This means that any gains from cryptocurrency trading would be taxed at the same rate as stocks and other investment assets. Before you can reach out to your local tax specialists in San Diego, get to know the process of filing cryptocurrency taxes and avoid making a costly mistake.
How do I pay taxes on cryptocurrency gains?
It’s never too early to get organized with your crypto taxes. The standard Form 1040 tax return now asks whether you engaged in any virtual currency transactions during the year. If the answer is yes, here’s what you need to keep in mind:
1. Keep records of all your transactions
Keeping track of all your cryptocurrency transactions is crucial, and it includes how much you spent on crypto, how long you held and sold it for, as well as the receipts for each transaction.
Your crypto exchange may provide a 1099-B, reporting your crypto transactions directly to you and the IRS. However, it might not record the cost basis or the original amount you paid for your crypto, if you transfer coins between your account and offline cold wallets.
2. Fill out the proper tax forms
Once you’ve gathered all the records of your crypto transactions and depending on how you used your crypto, you’ll need to fill out certain tax forms:
- Form 8949 – logs every sale or of crypto as an investment. This includes the date and price, the total number of coins, the date and price you sold, as well as your gains or losses for every transaction.
- Schedule D – a form that summarizes your total capital gains and losses from all your investments, including crypto.
- Schedule C – If your coins stem from mining, you’ll be asked to disclose whether you received them as part of a hobby or as a business. If you own a crypto-mining business and your income exceeds your expenses for the year, you may owe self-employment taxes.
- Schedule 1 – If crypto-mining is a hobby, you won’t owe self-employment taxes. However, this may limit what you can deduct as an expense.
3. File your taxes
If you store your records online, you can use it to your advantage to file your state and federal tax returns using a tax software of your choice.
4. Hire a professional
Preparing to file cryptocurrency taxes can be daunting and complex, especially as the laws surrounding them are constantly evolving. If you’ve made income from cryptocurrencies, consider hiring a tax consultant who specializes in this type of tax service, and avoid IRS issues down the road.
Need a tax specialist in San Diego that offers cryptocurrency services? Get in touch today!
If you need specialist advice on cryptocurrency or any other type of taxes, here at David York’s Tax Service, we have the expertise to assist you with all your tax-related needs. Reach out to us to find out more about the scope of our services. Call today to set up an appointment with the best in San Diego and across the region!