How to prepare for cryptocurrency taxes? Soon, governments will start working closely with financial regulators to start taking cryptocurrency investors. Cryptocurrency taxes will help legitimize the industry and also streamline processes. As an investor, it is important to prepare for this well to avoid any tussles with the government.
Here are wise nuggets on how to prepare for cryptocurrency taxes
Record Every Transaction Done in an Exchange Platform
One of the factors that the regulators will be using to calculate the amount money you are supposed to pay as cryptocurrency tax is exchange data. Take note of every transaction that you do in a cryptocurrency exchange platform, be it a purchase or sale of your digital assets.
Having updated historical data of every transaction or trading history will help you do the calculations and ease the reporting process.
Keep a Record of all Cryptocurrencies Received
The first thing that you need to note is that cryptocurrency that you receive will be categorized as income. The regulator will treat this form of income differently from other crypto trades when tabulating tax. Based on this fact, it is important that you keep a record of all cryptocurrencies received or earned through various means such as bitcoin mining. Take note of not only the amount but also the date and time that you got the digital assets.
Calculate Losses and Gains on Cryptocurrency Investments
You owe the government cryptocurrency taxes from the profits gained through trading. Knowing how to calculate loses and gains will be instrumental in filing cryptocurrency taxes. Some of the factors that you should consider include cost basis and fair market value. Fair market value refers to the cost of a digital asset in an open market while cost basis is considered as the original value of the cryptocurrency.
Consult a Tax Specialist
Cryptocurrency tax reporting process will be easy if the crypto trading activities that you have being doing are straightforward. However, if some of the transactions are complicated, it is advisable to consult one of the accredited tax specialists in your area. The tax specialist should be someone who has also invested in cryptocurrencies, understands the industry, and has handled similar cases in the past.
Report Crypto Loses to Save Money
When you realize your total capital gain, that is, you sold your cryptocurrencies or digital assets at a price that is higher than the purchasing price) you are required to pay taxes on the gain or profit made. However, you will not always make a profit, there are instances when you will incur loses.
Save money by also calculating loses and reporting them when filing cryptocurrency tax report to the government. Doing so will help you save hundreds of dollars that you would have paid to the government as cryptocurrency taxes.
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