Cryptocurrencies have been around for a while now. They seemingly appeared out of nowhere when Bitcoin prices started skyrocketing near the end of 2017 and into 2018. Despite the crash at the end of 2018, it’s clear that crypto isn’t going anywhere any time soon.
People all across the United States are investing in Bitcoin and other cryptocurrencies. Some are buying in and cashing out when the price increases while others are buying and holding. What many people don’t know is that crypto is taxable. There’s still a lot of confusion around how the process works. Here are five things that you should know about your crypto this tax season.
You’re Responsible for Reporting
Unless you’ve made a significant amount of money (and several transactions), you’re responsible for reporting your crypto on your taxes. You’ll only receive a statement from Coinbase if you’ve made more than $20,000 or had at least 200 transactions. If you don’t see this kind of crypto activity, you’ll need to figure out your obligations.
You Need to Keep Track of Your Crypto
There may be brokers and exchanges for cryptocurrency trading, but they don’t have to keep track of your transactions or provide tax reports. Some may provide a cost basis for taxes, but not everyone does. Instead, you need to keep track of your dealings. It’s vital that you keep records of when you purchased or sold your crypto and how much they were worth at the time. When the time comes to file, you can make the process of paying crypto taxes easier. There is cryptocurrency tax software available that you can use to upload all of your transactions and generate the appropriate forms. The forms can then be provided to your accountant along with the rest of your tax information.
You Can Get Deductions for Donation
You can make charitable donations using cryptocurrency, not unlike making a donation with cash. Just like cash donations (and donations of personal belongings), donations using crypto may be tax-deductible. The tax deduction is equal to the fair market value of the coin you donate (which must be determined by an appraiser) and no taxes are paid on the gain. Your chosen charity receives the full value of the coin.
There are a few stipulations, however. To qualify for a deduction, crypto donations must be made to eligible charities. You can’t sell your tokens and then donate the cash. You also need to itemize all of your deductions.
Spending Works Like Selling
According to the IRS, spending your crypto is no different than selling it. If you put crypto on your debit card and then go to an ATM to take out the cash, you’re essentially selling it. As such, you need to keep track of those transactions to report taxable gains or losses come tax time.
Don’t Hide Your Crypto
Many people mistakenly think that since no one is reporting their crypto gains, then they don’t need to either. After all, who’s going to know?
As tempting as it can be to hide your cryptocurrency, don’t do it. The IRS might not know about it at the time, but the entity could find out about it later. Failing to report any of your cryptocurrency transactions, gains, or losses can result in some serious penalties. In more extreme circumstances, you could face criminal prosecution. Should you be found guilty of tax evasion, you could be faced with jail time and a rather steep fine.
Rather than try to hide your crypto because you think the IRS won’t find out, it’s best that you report it. This way, you know for certain that you won’t be faced with penalties or fines.
If you have cryptocurrency, it needs to be reported on your taxes. While few people reported when the guidelines first came out, the IRS is becoming stricter. Keep track of your transactions and be prepared to report your earnings and losses when it comes time to file this tax season.