The question of how to report crypto on taxes plagues many investors. There are many different ways to go about reporting your earnings from cryptocurrency. If you’ve bought and sold cryptocurrencies in the past, you’ve likely had to file Form 8949. This form reports realized gains and losses from your cryptocurrency investments. You’ll need to know when you bought and sold them to get the correct amount of tax.
In the United States, buying and selling crypto is taxable. The IRS views this as two separate transactions. If you buy ETH with BC, you’ve sold BTC for the equivalent amount of ETH. The IRS considers this a sale because you never received any fiat currency in exchange for ETH. Therefore, you must pay tax on the sale of BTC. While you might not have to pay tax on the sale of your BTC, you still have to report your ETH on your taxes.
Once you buy cryptocurrency, you must calculate its fair market value. You’ll need to determine the cost basis and hold it for a certain period. You should also identify the date you bought and spent it. It would help if you also calculated any capital gains and losses you’ve realized on the sale. Enter all your gains and losses on Form 8949. This can be a complicated process, but it’s one of the most important parts of cryptocurrency tax reporting.
While crypto trades are untraceable, the IRS will still want to know about them. If you’re unsure about how to report cryptocurrency on taxes, Koinly is here to help.
When taxing your cryptocurrency, you should consider that the IRS views crypto as property. As long as you own the crypto, it’s considered income, and any gains or losses you make should be recognized and reported. If you sold crypto for $1,500, the $500 profit would be taxable, and the remaining $500 loss would be deductible. In these cases, buying cryptocurrency is not a taxable event.
This software can automatically create tax forms for you based on your historical transactions. Then, you can upload these to TurboTax or TaxAct for filing. Many free services will make the process easier for those who would rather hire a professional. But, if you are new to cryptocurrency and don’t know where to start, Koinly offers free and paid services.
The cryptocurrency price fluctuates daily, and you’re likely to owe taxes on these gains and losses. Even though most cryptocurrency users are not aware of this, it’s still an important topic for many people. The Internal Revenue Service sends out 10,000 “educational” letters this year. If you’ve recently bought and sold crypto, you need to report it as business income. The same goes for cryptocurrency miners.