How to file crypto taxes in 2023?

Want to know about the taxation of crypto earnings? Whether you are making or receiving payments in сryptocurrency or probably interested in trading, this post will be useful to you.

When referring to cryptocurrency trading, people frequently refer to virtual assets with its own internal security (the blockchain) that is part of a decentralized ecosystem (none of the existing financial institutions are involved). Nevertheless, the United States tax law perceives cryptocurrencies as property rather than currency. For this reason, it is obviously necessary to clarify the tax problem. The most often asked issues concerning crypto tax will be addressed in this post, which will also assist you in avoiding problems with the tax authorities.

Is it obligatory to report crypto when preparing a tax report ?

As we discussed earlier, crypto is referred to as property rather than money, as mentioned in IRS Notice 2014-21. This means that whenever filling Schedule D along with Form8949 it is required to include these assets. As a result, every transaction involving cryptocurrency are going to have the identical impact on your crypto tax as those involving common money (like dollars). So, a tax return is a necessity.

How much tax does cryptocurrencies entail ?

We will look at this question from the perspective of term of owning. The amount of taxes is determined due to the period of time you possessed your assets.

A short-term profit is the one that occurs in the case of getting it from assets that have been owned for a period shorter than 12 months. Therefore, according to the amount of your income, taxes may be in the range of 10 to 37 percent in this case.

Other rates are applied if you earned profit from assets that were sold in a period exceeding one year. In this case the taxes will fluctuate within 0 – 20%. 

The way you can determine how much crypto revenue you have on your account?

1. Find out your asset’s adjusted basis value. This includes fees you may have paid in addition to the cost of buying a particular asset.
2. You will need to subtract all the paid fees from the sale price in order to get the correct figure when you establish the adjusted basis value while selling your assets on exchanges.
3. If the first is greater than the second, you have lost money. If vice versa, it means you have earned money.

IRS Publication No. 551 will be referred to in order to calculate the basis in the case where crypto was obtained as a gift.

In order to prevent mistakes while creating reports, we also advise utilizing special tax software.

How should I mention crypto income on my tax return?

The way you specify and report such income strongly depends on how you got the asset and what operations were made with it during the period. Cryptocurrency assets may be obtained in a number of ways.

You will submit taxes differently based on the following:

• You were trading cryptocurrencies for financial gain.
• You were involved in mining.
• You got paid using cryptocurrency.
• Using crypto exchanges.
• Gaining money as a consequence of an airdrop.

If you trade crypto, how should you report it on your tax return?

The IRS is not going to consider holding crypto as a taxable event. The taxes are imposed only when you perform selling operations with your assets and receive income.

You pay standard crypto tax in this scenario. Recognizing a loss within the reporting period, however, may reduce the rest of your income by up to 3k dollars. If you reported a loss and never used it, the loss might be carried over to other periods under identical conditions.

Ways to account crypto mining in tax return.

If you obtain your cryptocurrency from mining, this will be a taxable event. Form 1099-NEC must include such income in this case.

You must report any cryptocurrency gains you make even though you don’t have a Form 1099 because they can be liable to an extra self-employment tax.

Receive cryptocurrency payments.

When accepting cryptocurrency as payment, the tax is charged, and the amount is calculated considering the market price on the day of the transaction.

Operations on the exchange.

Even if you are swapping one currency for another since the crypto tax is computed in dollars, you must still take into account the market price when preparing a declaration. A tax must be paid when an asset is transferred to another participant in the transaction.

Airdrop

You may obtain new crypto as a result of a hard fork and an airdrop. An airdrop is a modification in the network protocol that results in the free distribution of tokens to participants. This occurrence must be reported in your tax return if you receive a gain in this manner because it also becomes subject to crypto tax.