Over the last few years, we have seen considerable changes in the crypto markets regarding taxes and regulations. I’m not a financial advisor or tax professional, but I will relay the information I got from my tax professional when I filed last year’s taxes. I recommend you contact a tax professional and financial advisor for more information.
Answer: My tax preparer told me for last year’s taxes that even though I had profits below the required minimum to file, it was better to report my holdings and income to help avoid the possibility of an audit. I showed low gains last year due to some bad trades, and it was helpful, allowing me to do something called tax-loss harvesting by offsetting my losses in crypto against my income.
Taxes can get complicated quickly, so most people recommend you talk to a professional during tax season. Mistakes can end up costing a lot of money and potentially land you in jail if the IRS determines your activities are fraudulent in nature.
I can’t tell you how to do your taxes or finances, but I will tell you what I do. I trade crypto on several exchanges and apps. At the end of the year, before the start of the tax season, I start downloading my statements for each app and exchange. I look at the price of the coins and my current profitability for each currency.
I then calculate what coins I will sell and hold through the new year. Once the new year arrives, I start downloading all my statements and entering them into a spreadsheet.
I got my taxes ready with and without the crypto trading activity and then paid a CPA to review my taxes and make recommendations. This year the IRS wanted a complete breakdown of all the trading activities, so we used the forms that included all the activities and turned that in to the IRS.
A common question is what software is reputable and can be used for crypto taxes. I will soon post an article and review some options I tried this year.
- I also plan to post about reporting for the crypto you own but didn’t sell.
- How to claim crypto losses on taxes (and how it didn’t help me at all for my 2022 taxes).
- And a few other common questions people keep asking.