How to Track Your Bitcoin Transactions for Tax Reporting
Cryptocurrencies didn’t get off to a bright start. Back in the day, they were scrutinized and people showed them distrust on every corner. Over years, things have changed. In the last few years, digital currencies have become mainstream, and people all over the world are involved with them; one way or another. For some, their main trait was that they weren’t tracked by regulatory organs for tax purposes. In most parts of the world, crypto has been free of taxes. For many, this meant additional earnings. While it’s good making extra profit, sometimes abiding by the law is better.
Cryptocurrencies are becoming mainstream as we already said, and what this means is that a full regulation could be on our doorsteps. It doesn’t matter if you’re involved with Ethereum or Bitcoin, or any other crypto for that matter, your crypto is taxable. For the IRS, they’ve seen the same way as gold or bonds would have been seen. This is the time of the year when you should think about your taxes. The holiday season is behind us, and if you want to get this year on the right terms with the authorities, following your crypto flow for tax purposes would be wise. To avoid any misunderstanding with the authorities you should learn how to track your Bitcoin transactions for tax reporting. Let’s see the best way to do this.
Which Transaction Matter The Most?
Working with cryptocurrencies have many catches, and if you’re new to the party, you can’t possibly know all, if any. This could be an issue, but we’re here to give you an insight that could be helpful. Crypto is not illegal but if you don’ pay attention it can get you in trouble. All that we want is to avoid this and make your business as clean as possible. Getting involved with crypto can be super entreating to the point that you’ll forget the basics of investment. You should never let to get into trouble for tax purposes involving crypto, and we’re helping you with that. So which cryptocurrencies transactions should you be wary of?
Fiat Purchases of Crypto
This is where things start to get tricky. Purchasing crypt doesn’t necessarily create a tax issue. But, if you invest your fiat currencies into digital ones, it is evident that you have an end goal of earning in the process. To do this you’d have to visit a crypto exchange and exchange your fiat currency for a digital one. If you opt for BTC you could have lost or earned a hefty sum of money considering its volatility. In any case, buying crypto isn’t as big of an issue. But to make money out of it once the time comes for sale, you’d have to report it to the IRS. Their tax forms state that you do not have to do this, but once you get involved with BTC seriously, there are chances that you’ll earn much more than you initially invested. When that happens you don’t want to be in a position to explain how it all started, how much you put forward, and what has returned.
Taxes are a must when you get involved with digital currencies trading. If you want to start that right away you can educate yourself on the subject in various ways, if you’re interested please, read more. But, first, we beg of you to think about which amount for your BTC earrings is taxable. If you start using your digital currencies as any way of exchange it’s time to think about taxes. There are many examples of this, and you should know all of them. For one if you turn your BTC back to fiat currency, you need to report it to the authorities. Even if you start exchanging Bitcoin for any other crypto, the IRS needs to know about it. Also, if you are feeling good about crypto as a payment method you’ll probably start buying products with it. If this happens, you are also entitled to report it.
As you see it, digital currencies are no longer in the grey zone. No, they’re very much under the radar these days. This is, we presume, fine, as you want to do things the right way. Every time you move your crypto it is a taxable move as you could gain something out of it, and the federal government wants their share. Only a few years ago, the situation wasn’t at all like this. Crypto was very little if at all regulated. But things have changed, and with more regulation, more people are feeling safer to start their cryptocurrency journey. If you’re involved with Bitcoin for some years now, it’s fair for us to warn you. While before, it was possible to avoid filing your cryptocurrency tax returns, it might not be the case in the future. No, the regulation is coming, and you should be wary if you haven’t had any experience with the IRS in the past but had earnings through digital currency means.
How Will Your Crypto Be Taxed?
This is a question you should already know. It is quite straightforward, not like the mess D&D made of the last season of Game of Thrones. It all comes down to your winnings and losing’s in a timeframe set out by the IRS. So, what you need to have in mind is the amount you’ll gain by dealing with digital currencies. If you invest $500 and finish the taxable period with $1000 earnings, you’d be paying capital gain for the $500 you earned. In the case Bitcoin punishes you, and you lose money, the amount will be deducted from your complete earnings which are not related to digital currencies. Also, you need to be aware of different tax rates. For example, your BTC adventure can last for only a few months, and in this case, you’re paying a short-term gain rate. But, if you deal with ti for longer periods, mostly seen as those of over a year, you’d fall under the different tax rate.