How To Avoid Overpaying Taxes On Profits From Cryptocurrency Trading
By now word is out: if you make a profit when you sell cryptocurrency, your profits are taxable. According an article of Accounting Today To actually pay your taxes is easier said than done if you do not have a clear understanding of how to reflect these profits on your tax returns.
Before you jump in we advise that you instruct either your tax attorney or accountant to calculate your liability accurately. You have to pay tax for every year you made crypto profits, irrespective of the amount involved. If you bought your cryptocurrency with U.S. dollars your tax liability remains void until you sell the crypto for a profit.
The IRS is now actively pursuing enforcement in cryptocurrency and it is precautious for investors to take note of the tax implications of their investments. Four specific strategies are worth your while if you want to remain compliant at all times without overpaying your dues.
One: Long term View
Tax rates on capital gains go down over time, and it goes down after the first year. The secret with cryptocurrency is to follow a long strategy. Do not buy and sell over the short-term. Own, don’t “rent” is an advantageous mantra to follow.
Two: Keep Some in Dollars
Whenever you make a profit in cryptocurrency, set aside some of your takings in dollar to cover your taxes before you buy more cryptocurrency. If you made substantial profits, DO NOT convert your cryptocurrency into another currency, and if you receive “bonus” currency through a fork, you have to set aside enough of money to cover your taxes on the fork-amount, which will be taxable as ordinary income and not capital gains tax, at the end of the tax period.
Three: Keep Detailed Records
It can be hard to keep records of your cryptocurrency transactions. Most of the crypto companies provide no end-of-the-year tax statements, so it is up to you to keep a detailed spreadsheet with full details of when you bought, how much you bought and when you sold and for how much. Sometimes it is possible to export the transactions from your crypto wallet or exchange website directly into a spreadsheet.
Four: Crypto Gifts and Donations Are Not Taxable
Crypto gifts and donations are treated very much like stocks in the same situation. The value of the crypto gift or donation is deemed to be the fair market value of the cryptocurrency at the time it is donated or gifted.
Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.
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