April 15th is a dreaded day for many taxpayers. Known as Tax Day, this date marks the deadline for filing individual income tax returns with the Internal Revenue Service (IRS). However, for those who have invested in cryptocurrency, the process of filing taxes can be even more complicated. According to a CPA, there are critical steps that crypto investors need to take before this year’s deadline.
Crypto Investors and Tax Obligations
The IRS considers cryptocurrency as property for tax purposes. As such, it is subject to capital gains tax when sold, exchanged, or traded. This means that every time you buy or sell cryptocurrency, you need to keep track of the transaction details, such as the date, the amount, and the price. Crypto traders also need to report their gains/losses on their tax returns.
When the value of cryptocurrency increases, investors have to pay capital gains tax on the appreciation in value. On the other hand, if the value drops, you can claim a capital loss. However, since crypto is highly volatile, it can be tricky to determine how much tax you owe. To complicate matters, some crypto exchanges do not provide tax documents to their users.
Filing for an Extension
Given the complexity of filing cryptocurrency taxes, CPA Jessica Schroeder suggests that crypto traders should file for an extension on their tax returns. She says, “An extension buys you time to ensure you’re accurately reporting your cryptocurrency gains and losses. It provides the flexibility to have all your documentation in order before you file the final tax return.”
Filing for an extension is relatively easy, as long as you meet the requirements. If you owe taxes to the IRS, you will need to pay an estimated amount by April 15th to avoid penalties and interest charges. You can use IRS Form 4868 to request an extension, which will give you up to six months to file your tax return. Note that filing for an extension does not give you extra time to pay any taxes that you owe.
Getting Crypto Tax Help
If you are struggling with cryptocurrency taxes, there is help available. CPA Schroeder advises investors to seek assistance from professionals who have experience in crypto tax accounting. She says, “The assistance of a tax professional who can provide a review of your records and help with reporting can go a long way.”
Crypto tax experts can help investors track their transactions, determine their tax liabilities, and file their returns correctly. They can also advise on tax strategies to minimize the amount of taxes owed. Since cryptocurrency is a relatively new asset class, it is essential to choose a tax professional who has experience working with crypto clients.
Tools for Crypto Tax Reporting
There are also online tools that can assist investors in reporting their cryptocurrency transactions. These tools can connect to numerous cryptocurrency exchanges and wallets to import transaction data automatically. By doing so, they can provide users with an accurate record of their cryptocurrency gains and losses.
Some of the popular crypto tax software tools include TaxBit, CryptoTrader.Tax, and CoinTracking. Each tool has its unique features and pricing plans. Some offer real-time, interactive tax reports, while others provide detailed historical transaction reports. Regardless of which tool you choose, make sure it integrates with the exchanges and wallets you use.
Filing cryptocurrency taxes may seem daunting, but it is an essential task that must be done. By following the recommendations of experts like CPA Jessica Schroeder, crypto investors can ensure that they are compliant with tax laws and avoid hefty penalties. Remember to keep meticulous records of your transactions, seek assistance from professionals when needed, file for an extension if necessary, and use the right tools to report your crypto transactions.