Key Things to Know About Crypto Taxes
Whether you’re a longtime crypto investor or recently purchased digital assets, here are some key things to know from crypto tax experts.
Answering Form 1040 ‘Digital Assets’ Question
– The IRS considers cryptocurrency a priority area for tax reporting
– Guidance was shared in January regarding reporting digital currency for the current tax season
– Starting in 2019, the IRS has included yes-or-no questions about crypto on tax returns
– For 2023, there is a specific “digital assets” question on Form 1040
– The term “digital assets” encompasses various types of digital currencies
– This includes cryptocurrency, stablecoins, nonfungible tokens, and more
– If you engaged in specific activities related to crypto in 2023, you must answer “yes”
– Activities include selling crypto, trading coins, or receiving digital currency as payment
Calculating Crypto Taxes
– Capital gains or regular income taxes apply when trading or selling digital currency
– Tax treatment depends on the holding period (how long you owned the asset)
– Gains are determined by the difference between purchase price and sale value
– Long-term capital gains rates vary from 0% to 20% based on holding period
– Short-term capital gains or regular income taxes apply to assets held for one year or less
Crypto Tax Reporting Process
– Many investors rely on tax forms for filing returns annually
– Lack of reliable reporting makes it challenging for crypto investors
– Forms like 1099-MISC and 1099-B may be received for rewards or transactions
– Some exchanges may not provide any tax forms at all
– Basis reporting errors can occur when moving currency between exchanges
Hot Take: Understanding Your Crypto Tax Obligations
Knowing how to handle your crypto taxes is crucial in maintaining compliance with IRS regulations and avoiding potential penalties. By staying informed about reporting requirements, calculating taxes accurately, and understanding the implications of different activities related to digital assets, you can navigate the complex world of crypto taxation with confidence.
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