Thread by @Cointelli_Dan

[1/20] THE ULTIMATE #CRYPTO TAX GUIDE THREAD

Covered topics include: #IRS & crypto tax rules, Capital gains tax explained, crypto tax forms explained, how to reduce crypto taxes👇

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#cryptocurrency

[2/20] In the early days of the #crypto market, when trading was yet to be strictly regulated, many investors were able to avoid paying taxes on their trades. But times have changed. The #IRS is cracking down on crypto taxation, and a growing number of
traders are facing audits

[3/20] The good news is, #crypto taxes don’t have to be as complicated as they sound. This guide walks you through the nitty-gritty on how to report crypto on your next round of taxes. We’ll cover everything from which crypto events are taxable, to how crypto is taxed.

[4/20] The #IRS included the following question on Form 1040 for 2020 and on Schedule 1 for 2019: “At any time did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

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#cryptocurrency

[5/20] The #IRS will be taking a close look at whether those who answered “yes” have reported their crypto-related income properly. Reporting your #crypto transactions as truthfully and accurately as possible is the best way to avoid any potential fines or legal action.

[6/20] For tax purposes, the IRS considers crypto as property. This is different from stocks, which are considered securities. #Crypto transactions fall into three categories: capital gains, ordinary income, and nontaxable income.
Use this chart for reference:
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[7/20] Capital gains tax rates fall into two categories: Short and long term. Short-term rates are based on a holding period of 1 year or less and are the same rates as ordinary income. Long-term rates are based on a holding period of more than 1 year.
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[8/20] The formula to calculate the capital gain/loss on a #crypto transaction is: Selling price - Purchase Price - Trading Fees = Capital Gain/Loss

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#cryptocurrency

[9/20] Ex: You paid a 1% trading fee for both buying and selling. If you make a #crypto purchase worth $5,000 total, your real cost is $5,050. When you sell the same crypto for $10,000 total, you realize $9,900 after accounting for the selling fee. Your actual gain is $4,850.

[10/20] Of the many #IRS forms, there are a few you should know about when you report #cryptocurrency on your #taxes:

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[11/20] (1) Form 8949- This form lists all your crypto transaction details, such as the purchase prices, selling prices, holding periods, etc. Based on the information provided on this form, the IRS will calculate your #crypto capital gains tax.

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[12/20] (2) Schedule D - This is a summary of the information provided in Form 8949 that states your total short-term and long-term crypto capital gains. This is also where you claim any loss from previous years and indicate the loss to carry over to the following year.

[13/20] (3) Schedule C - Profits from business, such as mining or staking, require a Schedule C. Business costs can be deducted from your income here.

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#cryptocurrency

[14/20] (4) Schedule 1 - Income from airdrops, mining as a hobby, hard forks, etc. are considered “other income” and can be recorded on Line 8 of Schedule 1.

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#cryptocurrency

[15/20] The deadline for reporting #crypto taxes is the same as for ordinary taxes, which is April 18th for 2022. Normally, the tax deadline is April 15, but due to a National Holiday, the deadline for 2022 is April 18.

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#cryptocurrency

"[16/20] Three ways to reduce your crypto taxes:

(1) HODL for long-term gains: Long-term capital gains are taxed at lower rates than short-term, so ensuring you hold your crypto for more than a year before trading or selling it can significantly reduce the #taxes you pay.

[17/20] (2) Tax-loss harvesting: This technique involves selling some of your #crypto at a loss to “harvest” that loss and offset your capital gains with capital losses.

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#cryptocurrency

[18/20] (3) Reduce your taxable income: You can lower your taxable income, and potentially move into a lower #tax bracket, by contributing to a retirement account or health savings account, or by donating to charity, among other methods.

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#cryptocurrency

[19/20] To make all this easy, you need #crypto #tax software that is accurate and supports all of your wallets, exchanges, and blockchains. We can do all this for $49 per tax year.

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#cryptocurrency

[20/20] Thank you for reading and if you have any questions, please leave comments here!

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#cryptocurrency