We know crypto taxes are complex: there’s a lot of moving pieces, confusing terminology, and fear of potential repercussions if reported inaccurately. But, when armed with the right resources, filing those crypto taxes doesn’t have to be so confusing or intimidating.
Time to talk crypto taxes! Ok, we know taxes aren’t anyone’s favorite subject. And for many people, just the thought of filing taxes, let alone filing cryptocurrency taxes, can create a sense of dread and anxiety. We get it. There’s a lot of moving pieces, confusing terminology, and fear of potential repercussions if reported inaccurately. But, when armed with the right resources, filing those crypto taxes doesn’t have to be so confusing or intimidating.
That’s why we’ve put together a comprehensive checklist to help you simplify the process and quickly file your cryptocurrency taxes to avoid an audit.
The short answer is yes. The majority of cryptocurrency activity is taxed as property much like stocks and equities, meaning that you must report any gains or losses when you dispose of your crypto. There’s a common misconception that you only have to report crypto on taxes when you sell your crypto for fiat currency. While this is indeed a taxable event, it’s important to note that trading your crypto for another digital currency is also a taxable event that must be reported, as well as using crypto at accepting merchants.
There are additional circumstances that may require you to report crypto as income, although these are less common. If you’re unsure of whether or not you need to file cryptocurrency taxes, check out our blog on cryptocurrency tax reporting for more on what is and isn’t taxable.
Let’s dive into the checklist:
1. An inventory of all your exchanges and wallets, with corresponding 1099-B forms
Many cryptocurrency traders use multiple exchanges. Before you sit down to file your crypto taxes, make sure you have a list of all the exchanges you’ve bought, sold, or traded cryptocurrency on. You should have received a 1099-B form from these exchanges. Cross-check to make sure you have a 1099-B from every exchange; this is where you’ll identify your cost-basis.
2. A list of any crypto received as income from mining, staking, or as payment
Unlike selling or trading crypto, mining, staking, or getting paid in crypto is taxed as income rather than property. Keep handy a record of the amount of income as well as time and date you received it.
3. A list of any crypto received as a gift
First things first: receiving a crypto gift is nontaxable. However, selling or trading the gifted crypto is! If you receive a crypto gift worth more than $15,000 and you decide to sell that gift, then your cost basis will be the same as that of the gift donor and you will be subject to capital gains tax.
4. A list of any airdropped coins
If you received any crypto from an airdrop, resulting from a hard fork or other reason, this is taxed at the ordinary income rate. The amount taxed is the fair market value of the crypto at the time it was received, so have this information ready when you file!
5. A record of crypto you donated (for deductions)
Donating crypto is not taxable. To the contrary, donating crypto is actually tax deductible. By recording this information on your tax return, you can not only write off the value of the donation, but you also won't have to pay a taxable gain if the crypto appreciates. Hooray for tax savings!
6. The right tax forms: IRS Form 8949 and 1040 Schedule D
Now that you’ve got your information handy, you’ll need to report it on the right forms. If you incurred any capital gains or losses on your crypto trades (this is from selling, trading, or using as payment), then you’ll start by filling out Form 8949 and then transposing this information onto Form 1040 Schedule D.
Any crypto received as income (mining, airdrops, or getting paid in crypto) does not get reported on Form 8949, but it will need to be recorded on Form 1040.
7. Bonus: Tax Automation Software
Why not simplify this process anymore? Crypto tax automation software like TaxBit can easily sync with all your exchanges and wallets and automatically generate your crypto tax forms. This process only takes minutes, and if you do have any questions, our support team is ready to help you.
The best part? You can use TaxBit year round for real-time portfolio visibility and to make tax-optimized trades that reduce your tax liability.