Smart Tax Accounting Moves for Those That Use Cryptocurrency
Having a game plan for the future is ideal for many traders using cryptocurrencies. This not only provides a solid backing for those within the trade field, but also ensures that they’re covered come tax time. Many traders may or may not know the specific IRS and tax rules according to many of the cryptocurrencies, but protecting yourself through a wealth of knowledge on this topic is ideal.
Understanding these rules and regulations set forth by the government provides important information regarding cryptocurrencies what exactly you owe the IRS for the transactions that you make in the currency.
Tax Accounting Specifics
Many users have multiple cryptocurrency trades happening at any given time. Using a trade solution that is dedicated to just these currencies should be considered. Through the use of a program, you can have your taxable income based on the rules for these cryptocurrencies. Capital gains, losses, Form 8949 and any other income statements should be generated through the program. All of your coin transactions should be accounted for within this one program, all going in, out, trades and even purchases.
It is important to stay clear of the IRS if at all possible and these programs can provide more insight on the trading that is done within your account.
Exchanges and Platforms Do Not Provide Tax Reports
Keep in mind that these platforms and exchanges do not provide tax reports for their traders and wallet holders to use. They do not keep this cost information, as well as are unable to give users online tax reports for their wallets.
Simply because the coin is not a covered security that is covered in the taxable paperwork on Form 1099-B, so investors and platform owners do not have to provide a 1099-B.
Investors that use cryptocurrencies are the ones responsible for their own accounting and tax reports for their wallets. With a lot of uncertainty on tax regulations for cryptocurrencies and lack of IRS guidance, many coin traders might under-report their taxable income in all of the coin transactions that they do. By using accounting software for tax purposes, you’re showing an attempt to be compliant.
The IRS is Looking into Cryptocurrency Users
With the rise in cryptocurrency usage with many people throughout the country, the IRS is now looking into those that are trading and failing to report their earnings through the IRS. They’ve been serving “John Doe” summons to many platforms, asking them to provide the names and amounts of all those that hold accounts with their platform.
In 2015, it was shown that less than 900 taxpayers reported any capital losses or gains on any of their cryptocurrency transactions. This is an alarmingly small number when compared to how many people currently use cryptocurrency.
Since the prices for cryptocurrencies is skyrocketing in the past year, the U.S. treasury wants to make sure that tax revenues are now being recorded properly. Coins are currently labeled as “intangible property” and not actual currency because there would be no income or loss when it is counted as actual money being transferred.
Using Cryptocurrency Tax Software
It is recommended that those that trade, use, or hold onto cryptocurrency use tax accounting software. With many highly recommended products out there, many people can find inexpensive, yet lucrative programs to help them with the taxes that they’ll likely have to file at the end of the year.
This is a safeguard that so many traders are currently looking into, since the IRS is currently cracking down on those using the currency, but not reporting any of the coins on their income statements for the year. Paying taxes on the coins that they have used or held onto is essential, as they are actually being used monetarily and not figuratively.
Some of the recommended tax accounting software platforms that come from high traders in the industry are CoinTracking.info and Bitcoin.Tax. Both of these software platforms provide a way for a user to keep track of their wallets, transactions, ins and outs, even if they’re trading on multiple platforms.
Staying ahead of the IRS, following the rules and playing it safe is always recommended for any type of cryptocurrencies that are being used. Those traders are able to get more out of the transactions that they make, no matter the size if they can comfortably claim them on their taxes.
Ernest Miller is a research analyst for Investment Talk. He has built his career as a banking officer and later on a financial advisor. Now, he is focusing primarily on blockchain and cryptocurrency, but here you will also find his texts on the traditional economy, as well as analyses of stocks and investments.