5 Things You Should Know Before Filing Crypto Taxes


1.    Determine the cryptocurrency’s market value on the day it was bought or sold

                - Profit and loss calculations cannot be performed without this information. As soon as you acquire a cryptocurrency, you should keep track of its worth both before and after it is utilized or exchanged for something else.

 

2.    Determine the correct taxable event

                - The next step is to determine whether the crypto activity is a taxable event.

 

3.    Determine the cost basis

                - Calculate the profit or loss using the value from Step 1. For example, if the cryptocurrency was acquired for $1000 then used or sold at a market value of $800, the loss is $200. 

                - Profit/Loss = (Fair Market Value - Cost Basis)

 

4.    Make use of capital losses

                - Losses from crypto trading can be used to offset capital gains. Losses that remain after capital gains can also offset other sources of income up to $3000. Any remaining losses may carry forward to subsequent tax years.

 

5.    Report income, capital gains, and capital losses

                - The revenue from cryptocurrencies is reported on Form 1040, Schedule D. It is possible to earn either a capital gain or an ordinary income from cryptocurrencies, depending on the nature of the transaction. On the form, it must be placed in the appropriate columns.

                - All the details of cryptocurrency transactions that result in a capital gain or loss are reported on IRS Form 8949-D, which is used for reporting the disposal and sale of capital assets.

                - After gathering the relevant data and generating a tax report, you are ready to file your taxes.