2018 was a year to forget. It’s the toughest year for cryptocurrencies yet. All the regulations and negative news concerning the digital currencies did no help. On the contrary, it pedalled the diving prices and let to the total market capitalization falling from over $800 billion to $100 billion in 12 months.
This has led to many traders and enthusiasts filing loses in the 2018 tax return. This piece will try to review 2018 and lessons from crypto taxation that we ought to learn.
Crypto Trade Events Are Taxable
Up until the end of 2017, it was unclear whether 1031 like exchange law was applicable to cryptocurrencies. Tax professionals took advantage of this vagueness to defer capital gains.
Law makers noticed this loophole and drafted the Tax Cuts and Jobs Act Law which came to effect beginning 2018. The provisions cleared up the issue and provided that cryptocurrencies are not within the parameters of like-kind exchanges.
The clarity also meant that crypto to crypto trades like Ethereum for bitcoin is now considered as taxable events. They, therefore, need to be reported with the associated capital gains on tax within the United States.
Cryptocurrencies On The IRS Priority Watch List
The announcement of the taxation of cryptocurrencies on July 2nd 2018 kick-started what they call the Five Focused Compliance campaign for the same year. The announcement followed the appointment of John Cardone as Director and ‘chief oppressor of crypto profiteers.
But what did we expect? After such an eccentric 2017 and the sky reaching crypto popularity, the announcement was far coming. The news ignited a demand for crypto tax professionals to assist traders with complicated profiles.
Losses In Crypto Can Reduce Tax Bills
With the falling prices of crypto last year, the majority experienced losses in trading. As a result, investors filed losses in crypto to offset capital gains and save money on taxes.
In the US, the sale of crypto is treated as a sale of any other asset type including capital assets, bonds and stocks, etc. it means that a capital gain or loss is realized each time you trade any type of cryptocurrency. Any capital gains realized is subject to taxation.
However, if losses are realized, the loss can be used to offset gains emanating from other trades, for example, gains from sales of properties in your portfolio. This form of tax loss harvesting is saving thousands in dollars for active traders.
Turbotax Now In The Crypto Space
In an effort to make it easier for traders in calculating returns, Turbotax is getting involved in the crypto space.
It’s no fun tracking down every single crypto transactions in form of fair market value, cost basis and net gains. Traders who have tried this can witness the impossibility of the task. That’s where Turbotax comes in.
Through the integration of CryptoTrader.tax, TurboTax is making the process simpler. The CryptoTrader is a tax software that simplifies calculations of gains from cryptocurrencies. All you need to do is upload your trading data and crypto income in the platform and it does the math for you. You can thereafter export back data to Turbotax to include everything in your year-end tax return.