Do you have any questions about crypto taxes or how the IRS handles crypto transactions in the United States? The Internal Revenue Service (IRS) has provided clear instructions on how cryptocurrency is taxed.
Read on to find out more about crypto taxes in the US and how an accountant can help you with the same.
Crypto Taxes in the USA
Crypto purchases, exchanges, transfers, and earnings must all be reported to the IRS and state tax authorities when appropriate, and all of these transactions have their own set of tax considerations.
Crypto is classified as a digital asset in the United States, and the IRS handles it similarly to equities, securities, and other financial assets. Crypto revenue is taxed either as capital gains or as income, depending on how long you kept it and how you received your crypto.
Crypto Taxes Advice for Crypto Users
Some individuals are scared of cryptocurrencies becoming mainstream. Whereas many, on the contrary, argue that they shape the future of finance and will eventually replace government-controlled centralized fiat currency.
Whichever might be the case, there’s one fact we know for sure: more and more company owners are turning to cryptocurrencies. And as a result, accountants and CPAs must be proactive in providing up-to-date information that these customers may utilize to achieve their financial objectives.
Asking the correct questions, employing the best software to track your crypto transactions as well as crypto taxes, and being a trusted expert who can provide strategic financial advice are all part of this.
So, here are three top pieces of advice that you must keep in mind when dealing with crypto taxes:
1. Crypto Software for Crypto Taxes
This is especially important if you use a number of crypto exchanges and wallets, which store and protect your “private keys” or passwords. It’s also crucial for crypto investment traders that utilize DeFi (short for decentralized finance) programs.
If you’re seeking the help of accountants, make sure that they are aware of the various cost basis accounting methods. Crypto tax software, like ZenLedger, will help you streamline your crypto taxes and provide you with comprehensive transaction history.
2. Crypto Uses
This one, in particular, is directly related to how much taxes you pay. Since it is known by now that owning crypto does not incur taxes. It is how you dispose of them that decides whether you pay taxes and if yes, then how much!
If you’re dealing with your crypto taxes by yourself, you must keep in mind that all crypto actions, including earning interest, airdrops, and other crypto events, are either taxable capital gains or income tax events. So, to prepare yourself for the crypto tax season, the Internal Revenue Service advises keeping a record of all your crypto purchases and sales.
The most prominent crypto exchanges and software include reporting solutions that can help you build crypto transaction reports automatically.
However, if you take the help of a CPA or an accountant, you must be prepared to answer questions about your financial objectives and how you plan to use your crypto.
3. Cryptocurrency Investment Strategy
If you take the help of an accountant for your crypto taxes, you will also be asked questions about why you chose to invest in cryptocurrency.
This will help understand your approach toward crypto in a much better way. If you’re trading or investing, your CPA will see if they’re on centralized exchanges or participating in DeFi to see if they’re generating extra revenue.
Your accountant will also plan for the safety of your assets in case of your death or any such event.
Conclusion: Planning Your Crypto Taxes
Cryptocurrency is considered property in the United States. And you might seek advice on tax-saving and structural methods from CPA or accountant. They can advise you on how to save money on taxes, decrease your crypto taxes, and properly set up your crypto assets.
FAQs
How is cryptocurrency taxed in the US?
Crypto purchases, exchanges, transfers, and earnings must all be reported to the IRS and state tax authorities when appropriate, and all of these transactions have their own set of tax considerations.
Crypto is classified as a digital asset in the United States, and the IRS handles it similarly to equities, securities, and other financial assets.
Do you have to pay taxes over crypto?
Any profits in US dollars must be reported on your taxable income if you swap one cryptocurrency for another. When trading cryptocurrencies, you must keep records of how much money you have won or lost in US dollars. You’ll be able to appropriately report your cryptocurrency gains and losses this way.
How do I avoid crypto tax?
Since it is known by now that owning crypto does not incur taxes. It is how you dispose of them that decides whether you pay taxes and if yes, then how much! So in order to avoid paying crypto taxes, you can avoid selling crypto in a particular financial year.
