EVERYTHING you need to know about Crypto & Taxes.
Crypto markets are at ATH, and the U.S. gov. is cracking down.
If you want to go to the moon, you simply have to understand the rules of the game. You have to understand how crypto income is taxed.
Time for a thread 👇
Crypto markets are at ATH, and the U.S. gov. is cracking down.
If you want to go to the moon, you simply have to understand the rules of the game. You have to understand how crypto income is taxed.
Time for a thread 👇
1/ Crypto is treated as property in the eyes of the IRS.
Other forms of property that you are familiar with include stocks, bonds, & real-estate.
When you dispose of property that you own, you incur a taxable event, and recognize a capital gain or capital loss.
Other forms of property that you are familiar with include stocks, bonds, & real-estate.
When you dispose of property that you own, you incur a taxable event, and recognize a capital gain or capital loss.
2/ For example:
If you purchase 1 BTC for $20,000 and sell it two months later for $30,000,
you incur a $10,000 capital gain.
This $10,000 gets added to your TOTAL taxable income for the year, and thus the rate it gets taxed at depends on your personal income tax bracket.
If you purchase 1 BTC for $20,000 and sell it two months later for $30,000,
you incur a $10,000 capital gain.
This $10,000 gets added to your TOTAL taxable income for the year, and thus the rate it gets taxed at depends on your personal income tax bracket.
3/ You trigger a capital gain or loss that needs to be reported on your tax return whenever you dispose of your crypto. "Disposals" include any time you:
- Sell crypto for fiat
- Trade one crypto for another crypto
- Use crypto to buy goods/services
- Sell crypto for fiat
- Trade one crypto for another crypto
- Use crypto to buy goods/services
4/ YES - you DO realize taxable events and capital gains when you trade crypto > crypto. Even if you never "cashed out" to fiat.
We understand this is annoying, but it's simply how the law works.
We understand this is annoying, but it's simply how the law works.
5/ Outside of buying, selling, and trading, if you EARN crypto through:
- mining
- staking
- airdrops
- forks
- interest accounts (BlockFi, Celsius, DeFi)
- wages in crypto
This is taxable income. The amount reportable is the USD fair market value at the time received.
- mining
- staking
- airdrops
- forks
- interest accounts (BlockFi, Celsius, DeFi)
- wages in crypto
This is taxable income. The amount reportable is the USD fair market value at the time received.
6/ Example:
You earn 10 XYZ coin on May 1 as interest reward.
At this time, 10 XYZ coin is worth $100.
You recognize $100 of income on May 1. This gets added to your total taxable income for the year.
You earn 10 XYZ coin on May 1 as interest reward.
At this time, 10 XYZ coin is worth $100.
You recognize $100 of income on May 1. This gets added to your total taxable income for the year.
7/ What tax forms do you report crypto income on?
Form 8949 = Capital gains & losses from trading
Schedule 1 = Income from airdrops, forks, crypto wages and hobby income
Schedule B = Crypto interest & staking income
Schedule C = Business income / Mining income
Form 8949 = Capital gains & losses from trading
Schedule 1 = Income from airdrops, forks, crypto wages and hobby income
Schedule B = Crypto interest & staking income
Schedule C = Business income / Mining income
8/ How do you lower the amount of taxes you have to pay on your crypto income?
- Long term vs short term gains
- Offset gains w/ other property losses (stocks)
- Tax loss harvesting (bit.ly/3tmpz1h)
- Specific tax lot accounting (HIFO / LIFO)
- States with no income tax
- Long term vs short term gains
- Offset gains w/ other property losses (stocks)
- Tax loss harvesting (bit.ly/3tmpz1h)
- Specific tax lot accounting (HIFO / LIFO)
- States with no income tax
9/ Why is crypto tax reporting so much harder than reporting stocks in the equities world?
The inherent transferable nature of crypto (freely sending wallet to wallet), makes it impossible for centralized entities (exchanges) to know or track your cost basis at any given time.
The inherent transferable nature of crypto (freely sending wallet to wallet), makes it impossible for centralized entities (exchanges) to know or track your cost basis at any given time.
10/ When you send ETH to Coinbase, Coinbase doesn't know at what USD value you acquired the ETH.
It doesn't know your cost basis, and thus, it can't give you a gains or losses statement at the end of the year.
(this is why exchanges struggle with 1099-B)
It doesn't know your cost basis, and thus, it can't give you a gains or losses statement at the end of the year.
(this is why exchanges struggle with 1099-B)
11/ How can you automate all of your crypto tax reporting?
Easy. Use @CryptoTraderTax.
The software integrates with your crypto platforms. Simply import your transaction history across all your platforms and generate your tax reports based on that data in 1 click.
Easy. Use @CryptoTraderTax.
The software integrates with your crypto platforms. Simply import your transaction history across all your platforms and generate your tax reports based on that data in 1 click.
12/ Questions?
Reply to this thread with any crypto tax questions. We will answer them.
For more crypto tax info:
cryptotrader.tax/blog/the-trade…
Reply to this thread with any crypto tax questions. We will answer them.
For more crypto tax info:
cryptotrader.tax/blog/the-trade…
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