As cryptocurrencies and blockchain assets continue to grow in popularity and mainstream adoption, the United States Internal Revenue Service (IRS) has taken an increasing interest in their taxation. In the U.S., cryptocurrency is subject to crypto tax and is classified as transactions instead of property or assets. Needless to say, failure to accurately track and report these transactions can result in penalties and fines. Here is a comprehensive crypto tax guide for tracking and reporting crypto transactions for tax purposes in the United States.
In the U.S., if you invest in crypto assets, such as nonfungible tokens (NFTs), and transact further for gains, you must be ready for crypto taxation. Taxes are due when you sell, invest or dispose of the asset in any way for gains. Cryptocurrency is subject to taxation in two ways: capital gains tax and income tax.
Capital gains tax applies to profits earned from the sale of an asset that was purchased at a lower price. Any gains realized from selling or trading a digital asset for a higher price than purchased are subject to capital gains tax.
Income tax on cryptocurrency transactions applies to earnings from the mining and staking of tokens. These include receiving cryptocurrency from an airdrop or any crypto interest earnings from decentralized finance (DeFi) lending.
Some cryptocurrency transactions that are not subject to either capital gains or income tax include purchasing cryptocurrency with fiat currency, holding cryptocurrencies without selling them, and moving cryptocurrency between your own cryptocurrency wallets.
It is essential to accurately track and report all cryptocurrency transactions and consult a tax professional to meet all obligations. Several purpose-built crypto tax software solutions are available for tracking and generating reports for cryptocurrency transactions, such as Koinly, CoinLedger, and Accointing.
By keeping accurate records and staying informed on the latest tax guidelines, you can easily navigate the tax implications of your cryptocurrency investments. While there are still many “undefined scenarios” as it pertains to taxing crypto, the IRS is continually working to cover them.
After accurately tracking your crypto transactions, you must send them all to the IRS for tax purposes. Reporting capital gains and losses on Form 8949 and the total gain (or loss) on Schedule D of Form 1040, while reporting crypto income on Form 1040 itself, along with capital gains or losses from crypto transactions.
One may consult a tax professional for guidance on filing your cryptocurrency taxes accurately and reporting them correctly on your tax return.
Source: Cointelegraph
