Crypto Taxes Made Easy: How To Report Using Form

Introduction

Do you own any cryptocurrency and want to know how to file taxes on it? It can seem complicated, but it doesn’t have to be. This article will walk you through the process of completing form 8949, the document required by the IRS to report your crypto taxes. We’ll cover an overview of crypto taxation, how to calculate profits and losses, and how to report donations or gifts of cryptocurrencies. After reading this article, you’ll have all the information you need to report crypto on your taxes.

Overview of Crypto Taxation

Crypto taxes are a fairly new and often confusing topic for many individuals and businesses. With the recent increase in cryptocurrency transactions, understanding the taxation of digital assets is vital for staying compliant with the law. In the United States, the Internal Revenue Service (IRS) considers cryptocurrency a property, not a currency, and thus it is subject to capital gains tax. Cryptocurrency traders and investors are required to report all taxable events to the IRS using the appropriate form. 

This article will provide a general overview of crypto taxation and how to correctly report using the required forms. It is important to note that this information is provided in a null tone and should not be taken as specific legal advice. Rather, it is intended to provide general guidance and resources. 

IRS has provided comprehensive frequently asked questions and answers on digital assets. 

The first step when filing cryptocurrency taxes is to calculate all of your taxable gains or losses. It is important to understand taxable events transactions involving cryptocurrency are taxable. 

For example taxable events are, 

• If an employee was paid with digital assets, they must report the value of assets received as wages. Similarly, if they worked as an independent contractor and were paid with digital assets, they must report that income on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship)
• The Sale, exchange or transfer of cryptocurrency - use Form 8949, Sales and other Dispositions of Capital Assets

Once all of your taxable events have been identified, you must calculate the gain or loss for each event. This can be done by subtracting the cost basis (or original purchase amount) from the proceeds (or amount received) for every transaction. The resulting gain or loss must then be reported to the IRS. 

In addition to calculating and reporting gains and losses, you will also have to report any income earned from activities such as mining and staking. For both of these activities, you must report any income received (or mined) in the form of cryptocurrency as income. 

Once all gains, losses, and income have been identified and calculated, it is time to report all of this information to the IRS. This is done with Form 8949, which can also be found on the IRS website. When filing, make sure to include all of your transactions and accurately report the amount of gain or loss for each. Additionally, any income earned from mining or staking must also be reported. 

Crypto taxes can be a tricky subject, but understanding the basics is the first step towards accurately filing your taxes. It is important to consult a tax professional if you are unsure about any of the information presented here.

Guidelines for Reporting Cryptocurrency Income

When filing taxes, it is important to report any cryptocurrency income. Most transactions involving cryptocurrency are taxable and should be included on your tax return. The exact amount and type of income you must include will depend on the type of transaction and how you use the cryptocurrency.

In general, crypto transactions that involve the exchange of one type of crypto for another, the sale of crypto, the use of crypto to purchase goods, and trading cryptocurrency for another currency should all be reported. 

When reporting cryptocurrency income, you'll need to fill out Internal Revenue Service (IRS) Form 1099-K. This form is used to report transaction-level information related to cryptocurrency activity and income earned. To accurately fill out this form, you'll need to include details regarding the dates and values of each transaction, as well as any applicable taxes paid on the cryptocurrency income. 

Finally, when it comes to capital gains or losses associated with cryptocurrency trading, you should report them on Form 8949. This form allows taxpayers to report gains and losses separately for transactions of the same type and asset. By accurately reporting your cryptocurrency income on the required forms, you can ensure that you are in compliance with any applicable tax laws.

Calculating Profits and Losses

When it comes to filing your crypto taxes, you need to report any profits or losses resulting from cryptocurrency transactions. To do this, you will need to calculate your gains and losses from the sale or trade of cryptocurrency. This will include any income and expense incurred during the course of trading. To calculate this, you will need to track all of your purchases, sales, and exchanges of cryptocurrency for the tax year. Additionally, you will need to include any transaction fees incurred. Once you have all of this information, you can then calculate your total gains or losses for the tax year.

How to File Form 8949

When it comes to filing your crypto taxes, Form 8949 is a key form you will need to include with your return. The form is used to report capital gains and losses from your cryptocurrency transactions. It is important to be aware of the different categories of gain that may apply on Form 8949.

To properly complete Form 8949, you will need to include certain information, such as date of the transaction, cost basis, gain or loss, and other relevant details. When you are done, you will need to attach this form to your federal tax return. 

It is important to note that you will need to file a separate Form 8949 for each type of cryptocurrency you have traded, such as Bitcoin, Ethereum, and Litecoin. This allows you to accurately report any capital gains or losses that you have incurred from each type of transaction. Additionally, you will also need to include a summary of your total capital gains and losses from all types of cryptocurrency transactions on Schedule D of your federal tax return. 

It is important to take the time to properly compile and submit your Form 8949 and other required documents, as failure to do so could result in penalties from the IRS.

Reporting Donations, Gifts, and Investment Income

When it comes to taxes, donations, gifts, and investment income must be reported regardless of whether they are in the form of cryptocurrency or traditional currency. Regardless of the form, the Internal Revenue Service (IRS) requires that these transactions be reported on your federal taxes. 

When reporting donations and gifts, the IRS generally does not require that the recipient of the gift or donation pay taxes on them. However, donations and gifts of cryptocurrency are still subject to special rules. For example, if the donor paid for the gift or donation using property or services, then the recipient will be liable for any applicable capital gains taxes on the amount received. 

When it comes to investment income, such as income from capital gains or dividends, the same rules apply whether the income is in the form of cryptocurrency or not. This means that if you remain in possession of the cryptocurrency for at least a year, then you will be eligible for a capital gains tax rate. The same holds true if you sell the asset within a year, in which case you will be taxed based on your ordinary income tax rate. 

 

To report donations, gifts, and investment income on your federal taxes, you will need to include these amounts on your Form 1040, U.S. Individual Income Tax Return, or any other applicable tax form. When reporting cryptocurrency-based donations, gifts, and investment income, be sure to include the currency’s name, transaction date, and the amount received in U.S. dollars. 

If you are unsure of how to report donations, gifts, or investment income from cryptocurrency transactions, you should consult a qualified tax specialist to ensure that you are in compliance with federal laws and regulations.

Reporting Donations or Gifts of Cryptocurrencies

If you are donating or gifting cryptocurrencies, it is important to record the fair market value of the cryptocurrency in U.S. dollars at the time of the donation. You should include this information on your tax return and report it using IRS Form 1040 Schedule A. Additionally, you are required to obtain a letter from the recipient verifying the donation. This information is necessary to ensure that you are claiming the correct amount of deduction for the donation. Keep this same information when reporting any other form of property, such as stocks or real estate.

Reporting Investment Income from Crypto Investments

When it comes to reporting your crypto investments on your taxes, the process can be complex. First, you will need to include the income gained from your investments on your tax return. If you've made any profits from purchasing, trading, or exchanging cryptocurrency, you'll need to include these amounts in your income. 

If you have made a capital gain from the sale of cryptocurrency, you'll need to report these gains on Schedule D of your tax return. You will also need to provide details about the date of purchase, cost basis, and sale amount. You may also need to include additional forms such as Form 8949 to report any capital gains or losses. 

When reporting your crypto assets, it's important to make sure you include the correct information and pay the correct amount of taxes. Be sure to consult with a tax professional if you have any questions or need help with the process.

Conclusion

We hope this article has been helpful in understanding the basics of crypto taxes and how to properly report them using Form 1040. Although the process can seem complicated at first, by taking the time to understand the rules and regulations and keeping detailed records, reporting crypto taxes can be made simple and straightforward. To ensure accuracy, it's always important to work with an accountant or tax professional who is familiar with this type of transaction. 

Crypto taxes can be complicated — but with the right information, it doesn’t have to be. We hope this article has provided a useful overview of how to report crypto taxes using Form 1040. For more information about filing crypto taxes, including detailed instructions on filing the associated forms and how to apply the applicable tax rates, refer to the IRS website. 

In conclusion, crypto taxes are complex and require special attention to stay compliant with the law. Fortunately, there are a variety of resources available to help you understand the reporting process and get it done quickly and accurately. By knowing the rules, keeping detailed records, seeking professional help when needed, and taking advantage of the resources available, crypto taxes can be made easy.

Contact Surya Padhi at Sure Financials for any question and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and  New Homepage - National Association of Enrolled Agents (naea.org). Visit Welcome | Sure Financials & Tax Services, LLC (surefintaxsvs.com) for more information and contact us by calling +1908.300.9193.