Are you prepared for the upcoming cryptocurrency tax season? Over the last couple of years, digital currencies also commonly referred to as cryptocurrencies have exploded into the public eye. Their use and value on various exchange platforms has grown exponentially as more investors pumping thousands of dollars into the industry. IRS has been focussing on these new forms of currency and has announced that it will start taxing users.
Prepare for Cryptocurrency Tax Season
The cryptocurrency tax season is around the corner and it is the high time that you started to prepare to avoid legal tussles and other inconveniences. Before we proceed, it is important to note that a cryptocurrency investor portfolio can stretch across multiple platforms and have different forms. This aspect makes it difficult for IRS and other financial regulators to collect all the information they need.
That said, here are two wise nuggets that will help you report your activities or transactions in the cryptocurrency world easily.
I decided to start with this tip as most people are not comfortable reporting loses. One of the misconceptions about the cryptocurrency industry is that the chances of incurring losses are slim. The truth is that crypto investor loses money due to one or multiple factors that have a direct impact on the value of cryptocurrencies globally.
Now that we have that out of the way, the next thing you need to note is that cryptocurrency tax only applies to the gains or profits accrued from the digital assets that you own. This means that the losses you incur are not subject to taxes. You can save money by reporting the losses. In some instances, the loses will help you balance out stock gains, just make sure that you give the correct information.
Calculate the Gains
As mentioned earlier, cryptocurrency gains are subject to taxes. Therefore, you need to keep a record of the amount of profit that you get from trading various cryptocurrencies. The first thing that you need to do is determine the amount of money that you have lost over the last one financial year.
Here is a simple formula that you can use
Fair Market Value – Cost Basis = Capital Loss/Gain
This calculation will help you to know if you made a profit or a loss and as we mentioned earlier, you need to report the losses to avoid being taxed for them. By deducting the cost basis from the current fair market, you will be to know how much profit you have made from your initial investment in one or several cryptocurrencies.
There you have it that is how you can easily calculate and prepare for the upcoming cryptocurrency tax season. Make sure all the information is accurate to avoid any challenges down the road. Read more news about cryptocurrency industry here.