How To File Taxes For Transactions With Cryptocurrencies In USA
FAS CPA & Consultants
What transactions with cryptocurrency should I report on my tax return and what are the consequences of not doing it on time?
Usually, you must report all transactions when you trade cryptocurrencies because whenever there is a transaction of trading there is either a loss or a gain. A gain means income and that is to be reported to the IRS and a loss means that you can profit from the loss up to $3000 is a good idea a summary of sales and purchase transactions and keep the records. For example, in month 1 you buy $100 and sell it in month 2 at $300 so there is a gain of $100 that you need to report to the IRS, ideally you need to keep that connection whenever you buy cryptocurrency positions and sell it you have to go to the original purchase to make sure the profit or difference between the purchase of the sale to determine the profit or loss, that’s the easy way to keep track of the profits that you have whenever you’re trading in cryptocurrencies, most of the exchanges are connected to tax crypto software meaning I connect coinable to a tax app and it creates the tax automatically and with that form I will be able to provide the accountant or CPA for the creation of my tax return but I need the summary of income and expenses but the best way to do is going to tax crypto sites where we can create the form and give it to the CPA.
The consequence of not doing it on time, now on the exchanges are reporting to the IRS the activity during the year in your account so not reporting it will create a mismatch between the information reported to the IRS and the information reported on the tax return, if there is a mismatch the IRS will send you a letter that can trigger an audit and this means penalties and interest. So you better play safe and report proactively.
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Can I file my tax return for my cryptocurrency transactions by myself or does a professional need to do it?
You can do it by yourself and there are various tax sites that can help you but remember it’s a combination, you first have to upload the information to the tax software from the crypto site. The problem is that many tax software will not accept that crypto form, then you should hire a tax preparer when you have many transactions in several forms because for you it will be time consuming entering one by one the transactions, the profits or losses. If you find that any of this tax software are not allowing you to upload the form from the crypto tax software, then you just take it with a professional.
What documents must be presented in the tax return for transactions with cryptocurrencies?
The IRS doesn’t require the backup of the crypto transactions because as I said before the exchanges are already providing information to the IRS online at the end of the year, so you only need to report the information and it needs to be the same as the information they are receiving.
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How to request a tax refund for transactions with cryptocurrencies?
Unless you have paid taxes in advance and you used a W-2 form there will be no refund, if your only source of income are crypto transactions you will owe money because you have gains and if you have losses, you will owe nothing. If you have gains you are going to be taxed at a regular rate if their position that you purchased originally are held less than one year you pay regular income taxes from 10 to 39% and if you held it for over 1 year you will pay a lower rate up to 20%, but there is no way that you file crypto and receive a refund. The only way to have a refund is if you have paid taxes in advance like payroll, when you have a W-2 and you pay payroll and you receive salary income, the payroll tax is deducted from your salary same with the federal income tax is deducted from salary monthly.
That’s the only moment when you have a refund when you file taxes, if you have crypto and have not paid in advance taxes for the gains so you have to pay taxes. The only way to get a refund whit crypto transaction is that you also have a W-2 there you will receive a refund but no for the crypto. And actually, the crypto will reduce your refund so if you have it and your transactions are minimal and you have a W-2 form for payroll income you will have a refund, but if you have a lot of transactions with crypto with a lot of gains or profits, if you have a W-2 form income will be used to pay for that cryptocurrency tax that you owe.
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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