A Look at Cryptocurrency Taxes

By Published On: March 30, 2022Categories: Tax Tips

If you feel like everywhere you turn you are seeing ads for cryptocurrency, you are not alone. Cryptocurrency has become a very hot topic and the Internal Revenue Service (IRS) has noticed. Last year, the IRS made a big change to Form 1040 and moved the question “did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency” above where you list your wages. Think this was just a random change? Nope. The federal government has taken a strong stance on the payment of taxes related to cryptocurrency, and if you are at all involved in anything crypto, you need to be prepared. Read on for tips on how to properly manage the taxes related to cryptocurrency. 

Understanding Crypto Taxes

Whether or not you need to pay taxes on your crypto investments can seem murky, but the basics are that cryptocurrency may be subject to capital gains when exchanged or sold at a profit. Further, even crypto exchanges, cashing out to US currency or making a purchase with the crypto could be subject to taxation. The rates at which you will be taxed can also vary based on the length you have held the crypto and your filing status.

While this may seem complicated, not reporting your activities can be very damaging. At a basic level, you may face an IRS audit and with that can come penalties and possible criminal charges. Now that you are sweating a little bit, how do you make sure your crypto activities are properly accounted for?

How to Track and Report Your Crypto Activities

The level of reporting detail with your crypto activity can vary based on the platform you are using. Certain digital currency exchanges have very limited reporting and may not offer you the insight needed to track your gains and losses properly. With the growth of crypto, it paved the way for new software that is specific to the needs of digital investors. The premise of these softwares is to integrate with all different crypto platforms, aggregate your transactions, and calculate your specific tax liabilities. This information then becomes part of the standard forms you provide to your tax preparer each year. While it may seem like just another thing to keep track of, making sure you have proper insight and tracking into your digital transactions is essential to ensuring your tax compliance.

How Can SDK Help? 

Cryptocurrency is a hot topic right now and only getting hotter. The IRS has flagged it as a serious focus and it should be treated as such by investors. The team at SDK offers innovative and effective tax strategies and works to keep you abreast of tax law changes that impact your bottom line. If you have questions related to your crypto investments and tax liability, we are here to help. Reach out to us today at 612-332-5500 or email us at info@sdkcpa.com.