What To Know On Paying Taxes For Cryptocurrency

Don’t Treat It Like Cash 

Cryptocurrency creates a bit of a blurred line between cash assets and investments. While it is possible in many places to use cryptocurrencies like cash, it is not taxed that way. For IRS purposes, cryptocurrency is treated more like stocks and bonds, or even real estate investments. You’re taxed based on your gains or losses, which means you’ll need to track your cryptocurrency’s value. 

Reporting Your Cryptocurrency for Tax Purposes 

While you would normally get a 1099 tax form from your brokerage firm or bank on sales of stocks and bonds, you don’t always receive this form for crypto-exchanges and transactions. This means that you are the one responsible for tracking and reporting your cryptocurrency investment. 

So, if you have sold any cryptocurrencies, you’ll need to either pay the taxes on the gains you received, or you can reduce your tax bill based on the amount you lost on the investment, with certain limitations. You’ll need the four following pieces of information to report your cryptocurrency on your taxes: 

  • When it was purchased 
  • How much you paid for it 
  • When you sold it 
  • How much you received for it 

If you bought cryptocurrencies at different times, this can get a bit confusing. But, generally speaking, you want to follow a “first in, first out” rule. So, you would want to compare the earliest purchase price with the earliest sale price when determining how much of a profit or loss you had. A professional tax preparer at The Accounting Guys can also help you with calculating how much you owe, and assist you with filling out the proper tax forms. 

Tracking for Future Reporting 

Obviously, if you haven’t been keeping track of your cryptocurrency transactions throughout the year, it can be a bit of a hassle to round up all of this information and ensure it is accurate. This is why we strongly recommend that you keep a detailed record of all of your crypto-exchanges and transactions, including the four pieces of information mentioned above for every exchange you make. 

Remember that reporting is entirely on you for this kind of investment, so you want to make it as easy on yourself as possible and ensure your records are as detailed and accurate as possible. This will make completing your Form 1040 much easier when tax time rolls around. Be sure to enlist the help of a tax expert in Provo to avoid any errors in handling the taxes for cryptocurrency investments.

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