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The IRS has been aggressively going after crypto holders. It would be advisable that one pays tax if they have not done so to avoid any major consequences. However, it is possible to reduce the amount you pay to the IRS, here is how you can do it.
- Keep Good Records – Coinbase Taxes
If you trade on a major exchange such as Coinbase, you will be given a tax form statement if you make gains of more than $20,000 and take part in 200 transactions or more. Trying to calculate the amount of tax you owe the IRS is quite complex. Ideally, you should consult a professional service to help you. Failing to pay taxes for crypto can lead to fines of as high as $250,000.
- Offset the Gains You Make with Capital Losses
In case you made losses when disposing of property or trading in the stock market, offsets the gains you make in crypto with those losses. It is quite easy to do this. If you sold Bitcoin throughout the year and made money on your initial investment, this would simply be categorized under bitcoin capital gains.
- Utilize Crypto Tax Loss Harvesting
This will entail liquidating trading positions based on the loss of a position. The losses can be used to offset the taxable income. First, you will have to monitor all unrealized losses and gain and conduct trades, which make it possible for you to realize the gain or loss.
- Consider HODL
The best way to reduce the amount of capital gains tax you pay for crypto is by hodling. This ensures that you do not trigger any capital gains event. If you own crypto but you have not realized any gains, you are not required to make a report. This is a great advantage for those who wish to use crypto as a long-term investment.
Remedy for Those Who Did Not Report Crypto Trades
When the IRS first announced it would tax crypto, many people were confused. AS a result, many did not pay tax on their crypto trades. If the IRS decides to do an audit, it could go back a few years. It is important to try to calculate the tax liability for all the unpaid years and file amended tax returns to avoid any major issues.
Consult a Crypto Accountant
If you are a serious crypto investor, it is important to consult a professional. There are thousands of tax experts and CPAs in the crypto space. They will allow you to make accurate tax filings and avoid problems with the law. Since the IRS has not been forthcoming with rules regarding crypto taxation, many people are still confused. However, crypto accountants have taken time to try to understand the rules established by the IRS.
Ensure that you talk to a CPA that specifically understands the crypto sector. Otherwise, if they have not taken time to understand the crypto sector, they will not be of much help. It is important that the accountant you pick have specific knowledge in the crypto industry. The industry is unique and nuanced and not just any CPA can be of help to you.