Don’t Forget That Crypto is Taxable – How to Keep Good Crypto Tax Records Wen Lambo?

Currently, the market is on a pullback, given that almost every cryptocurrency on the top 50 list, except stablecoins, is trading in the red zone.

Selling and Tax Regulations

However, regulations have changed over the years. It is no longer a simple process to sell cryptocurrencies because there are several factors such as tax that you have to consider. The amount of tax charged from crypto trading differs between different countries. For example, there are countries that do not charge taxes on crypto.

The Internal Revenue Services (IRS) first launched guidelines about crypto taxes in 2014. The agency stated that between 2013 and 2015, less than 900 people had reported their gains and losses related to crypto trading. Since then, the agency has been cracking down on tax evaders in the crypto sector.

In 2017, the IRS ordered Coinbase to turn over transaction data related to over 14,000 clients who transacted over $20,000 worth of Bitcoin between 2013 and 2015. In 2019, the agency also stated it would send letters to 10,000 taxpayers suspected of tax evasion using cryptocurrencies.

Hence, if you do not want to find yourself on the wrong side of the taxman, the first thing you need to do before selling your crypto is to check whether proceeds from crypto sales are taxable in your country. If you find out they are, below are the tips and strategies to follow to maintain good crypto tax records.

Understanding Crypto Taxes

Before learning how to keep the right records for your crypto trades, it is crucial that you understand how cryptocurrencies are taxed. There are several factors that one has to keep in mind before preparing their crypto tax records.

If you receive Bitcoin as payment for goods or services, the transaction should be reported and will be subject to taxation under ordinary income. If you receive Bitcoin from mining activities, the same will also be treated as ordinary income. It could also be subject to self-employment tax.

If you are preparing your tax records for Bitcoin purchased as an investment and sold at a later date for a profit, taxes accrued from this will depend on the duration you have held the coins. If you hold Bitcoin for under one year, it will be treated as ordinary income and could be subject to additional state income tax.

If you hold Bitcoin for more than one year, it will be taxed under capital gains. Besides, the coins could also attract additional taxes depending on the net investment income. Of course, these tax guidelines are US specific and your local government will have different rules around taxation.

How to Keep Good Tax Records

When it comes to calculating and filing taxes, no one is an expert, unless you are an auditor or accountant. Hence, you need tips that will guide you in the process to ensure you do not make any errors and that you file the right amount.

If you have a high number of cryptocurrencies that you want to sell and you have HODLed for many years, it is best that you seek the services of a professional accountant. This is because holding for many years will be subject to capital gain taxes and the professional will inform you if there are any extra taxes that you need to pay.

If you are a small-scale trader, you can avoid the high costs of hiring an accountant by investing in accounting software. This software will automatically calculate the returns that you owe to the revenue agency depending on your crypto sales.

Last but not least, it is advisable to report your crypto transaction gains or losses on time. Avoiding filing these returns could cost you much more in the future if the tax agency comes to collect.

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