Crypto taxing is a new concept that has just emerged in the crypto world. It is basically providing financial details about your cryptocurrency investment and how it has been acquired. Crypto tax reporting helps you to claim all the tax benefits you are entitled to. Moreover, you can easily claim your deductions on crypto investments or trades.
The process consists of identifying the recipients of Crypto Transactions and filling with the US Internal Revenue Service together with the State and Local taxes. This year, the IRS seems to be taking things a notch higher when it comes to crypto tax. In 2021, crypto seemed to have a lot of ups and downs. There were days when stocks were high and days when investors were not so lucky. However, these ups and downs are the determining factors when it comes to paying taxes.
The thing about cryptocurrencies is that they get taxed just like any other asset. So do you need to find out everything relating to crypto tax reporting? Read on to find out.
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What makes you pay crypto tax?
It is said that 2021 was the year when many people invested in crypto. Now, if you’re a new bee and you’re wondering if that one bitcoin stored in your digital wallet will be taxed, then no. You only get taxed on cryptocurrencies if you use them to perform various transactions. Which transactions am I talking about? Well, if you exchange your bitcoins for Ethereum, then you’re required to pay some crypto tax.
Moreover, if you exchange your cryptocurrencies for US dollars or any other traditional currency, then be ready to pay some taxes. Buying and storing cryptocurrencies in the wallet doesn’t require you to give a tax report. However, exchanging investments will require you to do so.
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Also, something important to note is that NFTS are susceptible to taxation. If you get any gains on NFTs then you’re required to pay some capital gain tax. However, the rules concerning NFTs are quite unclear and you might end up not paying a dime. However, it is clear that if you’re a creator whose creation has not solicited any gains then you’re free from taxation.
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The tax report
The tax report depends on your gains and losses. Tax will be calculated by the amount you used to buy the cryptocurrencies in relation to the amount you got when you sold the same cryptocurrency.
Further, time might one of the things affecting your tax report. Time is calculated by the duration you had the cryptocurrency. If you had it for long from the time you purchased it, then the probability that you made a lot of gains is high. However, if you had it for a short time then it’s assumed you made fewer gains.
You also have to report on cryptocurrencies paid for certain services. If a service was paid for through cryptocurrencies then it should be indicated on your tax report.
How to report on crypto tax
For you to report on your crypto tax, you need to do the following:
- Look at the list of all your gains and transaction
- Use this to calculate the gains and losses you made
- Fill out form 8949
- Transfer the figures from form 8949 to form 1040 schedule
If all this seems like too much work for you, you can always go to TaxBit and get to report on your crypto tax.
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