Tag: crypto tax

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Crypto Tax Filing in 2023

Posted by admin on January 26, 2023
Last modified: February 13, 2023

How to Prepare and Report your Crypto Gains and Losses when filing Crypto Tax

Want to know the best way to compute crypto tax for profits and losses? It all depends on what country you reside in. In America, digital currencies are classified as a form of property, with both short-term and long-term capital gains regulations that apply. For those in the United States, understanding your tax liability when it comes to crypto can be a complex process. Crypto is treated as property for taxation purposes, which means gains and losses must be calculated according to long-term and short-term capital gain rules.

When filing taxes, it is fundamental to accurately calculate crypto gains or losses. Two elements play a major role in this: the holding period and realized profits or losses. It is, therefore, essential to understand these two components when computing your crypto tax.

When it comes to taxation, what are the rules regarding cryptocurrency?

In the United States, the taxation of crypto is similar to that of other forms of property. Therefore, both short-term and long-term capital gains regulations are applicable. Regarding taxes on crypto earnings, the rate is equal to that imposed on profits made from investments in stocks.

When determining one’s crypto taxes, both gains and losses must be taken into account. To help with this process, a specialized tax calculator can be utilized. Our tax calculator is perfect for this purpose.

Again, when filing taxes, it’s important to consider your crypto gains or losses carefully. This requires a thorough understanding of two primary components: realized gains/losses and the holding period. Calculating these accurately will ensure that you have precise figures when completing your tax return.

Factors to consider when calculating your crypto tax?

crypto tax

When it comes to filing crypto taxes, there are two key components that must be taken into account. Specifically, the calculation of crypto tax requires an awareness of how cryptocurrency is taxed as either short- or long-term capital gains.

When engaging in crypto trading or sales within the U.S., the rate of tax is determined by two key factors

– your realized gains (or losses) and 

– length of time you held a certain cryptocurrency prior to trading or selling it (the holding period).

Beginning one day after a purchase or transaction of cryptocurrency, and completing when you trade or sell it, constitutes what is known as a ‘holding period.’ Additionally, making purchases with crypto sets in motion a taxable event.

Crypto Tax Filing Example

In this case, after buying $10,000 worth of ETH, it was exchanged for $20,000 in BTC a month later. This created a taxable gain of $10,000. The taxable gain is $20,000 − $10,000 = $10,000. After just two months, this amount had increased by another $30,000 when the value of your BTC rose to $50,000. From that point, it could be used to purchase GameStop (GME) stocks with a total taxable short-term capital gain for the year being recorded as $30,000. Here the taxable gain is $50,000 − $20,000 = $30,000.

Best ways to calculate crypto tax with PriorTax and our Tax Professionals

Figuring out your crypto taxes can seem daunting at first, but here at PriorTax, we make it easy! We provide an account you can use to calculate your crypto gains and taxes. Alternatively, you can leave all those calculations to our experienced team of professionals. Either way, you can file your crypto taxes with us.

Maintaining accurate records is essential for those who own cryptocurrency. A crypto tax calculator can help calculate realized gains or losses and their respective tax implications to make the job easier. In addition, such calculators can provide a great deal of insight into how much one’s finances are affected by trading cryptocurrency.

Crypto Tax

Posted by admin on February 1, 2022
Last modified: February 1, 2022

Ultimate Guide to Cryptocurrency Tax.

How to Prepare Tax on Crypto?

Did you know that, for the IRS’s purposes, crypto tax is based on the fact that they consider cryptocurrency to be property?

One of the first questions on Form 1040 (the main U.S. Individual Income Tax Return form) is a yes or no question. At any time during 2021, did you receive, sell, exchange or otherwise dispose of any financial interest in any virtual currency? A version of this question first appeared on Form 1040 in 2020 and is there this year too.

According to the cryptocurrency exchange platform Coinbase, more than 10 percent of Americans traded cryptocurrencies in 2021. And cryptocurrencies are only growing more popular. Are you one of the many Americans holding, trading, and/or mining crypto? If so, it’s essential this tax season to be on top of what the IRS’s regulations for crypto tax means for your situation.

crypto tax
crypto tax

So, Crypto is Considered Property?

When thinking about crypto tax requirements, there are “taxable events” that the IRS will be interested in related to crypto transactions.

The IRS states that “Virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency.” What does that mean for us, individual taxpayers? 

Certain activities related to holding and trading crypto will make you liable for capital gains taxes from certain activities:

  • selling crypto for cash
  • exchanging/trading one cryptocurrency for another
  • making purchases with crypto

It also means that activities like buying crypto or transferring assets between exchanges (on a like-for-like basis) are non-taxable events. You will only incur tax on crypto and make transactions that are taxable events when you have realized gains or losses from selling crypto. Whether that is for cash, to buy a new crypto, or purchase goods and services. 

What does it mean practically for cryptocurrency tax obligations.

Capital gains taxes on assets will differ depending on how long you’ve held your cryptocurrency before selling. Similar to income taxes, capital gains taxes are also progressive. The tax rate increase as the taxable amount increases. Additionally, there are different rates for long-term gains versus short-term gains. Long-term gains will be taxed at a reduced rate compared with short-term gains, and these rates will vary depending on your income.

Depending on your income level, you can also be liable for the Net Investment Income Tax, which is set at 3.8 percent. In addition to crypto, net investment income also includes things like other forms of capital gains, interest, dividends, and rental and royalty income.

There are also instances when cryptocurrency that you receive will need to be reported as income. Taxable events that fall under this category include activities such as:

  • being paid in cryptocurrency
  • both staking and mining cryptocurrency
  • airdrops from hard forks

Both gifting and donating cryptocurrency are treated like other gifting and donating activities for tax purposes.

Remember to keep track of crypto transactions across any exchanges you use both for filing purposes. Especially for reporting capital losses that can be deductible. It is subject of course to the limitations on the deductibility of capital losses.

What IRS forms should I know about when paying tax on crypto?

Form 1040, the U.S. Individual Income Tax Return

Form 1040, the U.S. Individual Income Tax Return, will ask you about receiving, selling, exchanging, or disposing of crypto in the form of a yes or no question.

 Form 8949, Sales and Other Dispositions of Capital Assets

You’ll use Form 8949, Sales and Other Dispositions of Capital Assets. This is to list your capital gain and loss transactions (crypto tax events taxable as property). 

Schedule D (Form 1040), Capital Gains and Losses

You’ll use Schedule D (Form 1040), Capital Gains and Losses to aggregate and calculate your gains or losses based on the information from From 8949. 

Schedule 1 (Form 1040), Additional Income and Adjustments to Income

You’ll use Schedule 1 (Form 1040), Additional Income and Adjustments to Income to report income from activities like staking or mining (crypto tax events taxable as income).

File your crypto tax with PriorTax.com. We answer question prompts that will ensure you accurately report your capital gains and losses and other forms of income related to your crypto activities. If you receive a Form 1099-MISC from any exchange platforms, they will be helpful in ensuring you are correctly fulling your crypto tax obligations.

Additional records like gain/loss reports as well as raw transaction reports can also be really vital here to calculate your gains and losses for accurate reporting.

Crypto Tax Calculator

I want to estimate how much I’ll get back when I file my taxes. How do I factor in cryptocurrency tax obligations when using the 2021 Tax Calculator?

Take all of your transactions at each of your exchanges as your starting point. If not already calculated for you, you’ll need to calculate your capital gains and losses.

Then, in the “Investments” tab, under “Income,” you’ll use this information to fill in fields for Capital Gains or Losses. There are separate fields for short-term and long-term capital gains and losses. In the “Other” tab, also under “Income,” you can record crypto taxable events that are treated as income. Events such as staking, mining, airdrops, being paid in crypto in the field for Other Income.

Have questions about crypto tax obligations and regulations? 

In addition to certified tax professionals like those at PriorTax.com, the IRS’s own website can be an excellent source of information for all things related to crypto taxes. The IRS maintains an FAQ on Virtual Currency Transactions that will cover many of the activities. They are part and parcel of using crypto or “Virtual Currency,”. You’ll find them referred to on their websites. 

The IRS has also published guidance regarding tax on transactions using crypto. This is also available on the IRS’s website in the bulletin IRS Notice 2014-21, IRB 2014-16.

Keep up to date with PriorTax.com’s Tax News Blog. On the blog, we share helpful information on topics like tax obligations on crypto and more to make sure you have everything at your fingertips to tackle your taxes with confidence. And when you’re ready to file your current year or any prior-year tax return, we’re here to help you through the process. We can help you avoid racking up any more penalties and claim the fullest tax refund you are eligible for.