It is essential to follow good crypto accounting procedures, even in a successful business. You’re in business for profit. The biggest expense on most people’s books is their tax payment. Ignoring opportunities to cut these costs means you may lose a lot of money.
Minor adjustments can significantly impact the amount of crypto tax you pay annually. There are several ways to legally, morally, and securely reduce your cryptocurrency taxes, whether you are a crypto investor, trader, miner, or DeFi participant.
Taxpayers must report crypto sales, conversions, payments, and income as appropriate to the IRS and state tax authorities.
Let’s hear from real crypto traders and investors about how this nearly wiped out their profits right now…
Is This New Crypto Tax Regulation The Same As Other Asset Taxes?
“The first shock—I will say cultural shock—I got was that filing my crypto taxes needed a different form!” exclaimed an investor. While taxpayers must report crypto transactions, people often struggle with the differences between crypto taxes and the regular income they include on their tax returns.
You may use the tax filing software TurboTax for your regular tax reporting on your tax return. However, you cannot use TurboTax for crypto accounting. TurboTax will not calculate capital gains and losses for your IRS tax return form 8949. Instead, use specialized crypto tax software to download your transaction data from exchanges. This way you can scan through your accounts and wallets, determine your tax liability based on when you bought and sold your coins, and then generate a CSV that you can use to figure out what you need to report on your tax returns.
Can Poor Crypto Tax Accounting Make You Poor?
“Oh yes, it can!” Crypto traders and investors may find it shocking that only some crypto transactions are taxable. For the most part, it is possible to avoid paying taxes legally. For example, if you work with a good crypto tax accountant, you can get all the legal loopholes in your cryptocurrency accounting that you would have missed otherwise. A tax accountant will help you see if you qualify for these tax breaks under the IRS tax code. Since crypto is not a steady stream like every other taxable business, you need to use all these opportunities.
“It is very simple to go broke from paying all the crypto taxes,” says Kumar. “The basic rule is that you keep proof of purchase and sale, and the difference is the profit.” Your tax return is a flat 30% on the profit. But if you make losses, you cannot set them against profits. You are not eligible for any other benefits available to different types of income on tax returns. If you make losses, that is your problem.”
Is It Possible To pay The WRONG Amount In Crypto Taxes?
David Nuremberg says, “In the United States, you have to pay crypto tax. But many crypto investors or traders need to pay the right amount of tax for one or more of several reasons.
- They don’t understand the rules.
- They keep lousy records. Unlike the case with securities traded and bank accounts, they don’t get Form 1099s telling them the information they need.
- They knowingly ignore the law because it is in their personality to do so.”
The IRS is unlikely to ignore this. “Based on what the IRS has said, I expect many people to be subject to some stiff penalties.”
What Are The Penalties For Crypto Tax Evasion?
Taxpayers who deal in cryptocurrencies may be required to liquidate sizeable portfolios, including interest and penalties if they are late or fail to complete their federal and state tax filings.
According to a trusted source, there may be more penalties, including fines, an increase in the return percentage, etc.
“This new issue is gruesome to us traders,” says Viktor, “because the IRS has failed to put forth adequate guidance for taxpayers.”
“I used to do my own crypto tax accounting….”
“I used to do my own crypto accounting,” Ron says, “it was the worst two years of my life!”
Like you, Ron is concerned about making tax mistakes and getting in trouble with the IRS when doing his accounting and taxes. He stays up all night reading the IRS tax code to solve tax problems, spending several hours every month doing the taxes. As a crypto trader, he is good with analytics and numbers, but he spends the time he needs to spend checking crypto charts on tax accounting. Not to mention the stress level.
The quickest, easiest, least risky, and perhaps lowest cost (in terms of time, money, anxiety, and frustration) will be using the services of a professional crypto tax accountant.
If accounting for cryptocurrency is making you go crazy or you have better uses for your time, hire a crypto accounting tax service or crypto CPA to do it for you. You might just save a good chunk of your crypto assets! Any good crypto tax service should save you more in taxes than their fee may be!
What Can A Crypto Tax Accountant Do For You?
They give you personalized and focused attention on all your tax issues so that you will not miss a thing. This way, you can cut your crypto tax in your subsequent tax reporting.
They will educate you on all the loopholes you qualify for under the IRS tax code. That means you can get legal deductions and tax breaks that apply to your circumstances.
Stephan Knight is a nationally recognized, veteran Crypto Tax Accountant with 20+ years of experience in accounting. He currently works at Results Tax Accountants, a firm specializing in helping individuals and businesses with their Cryptocurrency tax and accounting needs. He’s also a co-author of a FREE Crypto tax and accounting blog at www.ResultsTaxAccountants.com/blog