Collecting crypto taxes can be complicated, especially for those exploring the world of decentralized finance. Here’s what to keep in mind.

Collecting taxes for cryptocurrency can be a confusing and difficult task for many people. The US Internal Revenue Service (IRS) considers cryptocurrency property subject to capital gains tax. This seems to make crypto tax filing easier, but due to the unique nature of crypto, there are many unanswered questions.

Accurately reporting pros and cons can be a nightmare. While anyone concerned about tax season knows it’s important to keep accurate records of every crypto transaction, there are other things to keep in mind.

There is a difference between short term and long term capital gains tax where tax rates vary based on a number of factors. These capital gains tax rates are available online and are beyond the scope of this article, which focuses on avoiding potential issues with the IRS when filing cryptocurrency tax returns.

How to report crypto tax
Collecting cryptocurrency taxes is not an option. This is a duty that every individual and company has. Those who keep track of their transactions – including the prices of the cryptocurrencies they trade – will have an easier time reporting their activity.

Even those who have not received tax documents related to their cryptocurrency movements can report taxable events. Speaking to Cointelegraph, Lawrence Zlatkin, vice president of Nasdaq-listed cryptocurrency exchange Coinbase, said:

“Crypto assets are treated as property for U.S. tax purposes, and taxpayers must report gains and losses when there is a sale, exchange, or change of ownership (other than a gift). Taxpayer Wallets Merely HODLing or transferring crypto between are not taxable events.
Zlatkin added that more sophisticated transactions “where there is a change in beneficial ownership, whether literal or substantial, may be taxable” even if the taxpayer does not receive an IRS Form 1099, which refers to miscellaneous income.

Meanwhile, Danny Talwar, chief tax officer at crypto tax calculator Coinley, told Cointelegraph that investors can report gains and losses in cryptocurrency through Form 8949 and Schedule D of Form 1040.

Investors with cryptocurrency losses after last year’s bear market may be able to save on current or future tax bills by harvesting tax losses, Talwar said.

Tax loss harvesting refers to the timely sale of securities at a loss to offset the amount of capital gains tax that would be payable on the sale of other assets at a profit. The strategy is used to realize short and long term capital gains. Coinbase’s Zlatkin elaborated on the strategy, saying, “Loss from the sale or exchange of crypto can lead to capital losses that can be used to offset capital gains and, in limited circumstances. I for individuals, some general income.”

Zlatkin added that losses “may not be adequately crystallized due to pending and unresolved bankruptcies or fraud,” adding:

“Taxpayers should be careful about how they treat losses and also consider the possibility of losses from theft or fraud when the facts support the claims.”

He said crypto investors should consult their tax advisors about available tax benefits or deductions. Investors should also be aware of losses from “wash sales,” which Zlatkin described as “the sale of crypto at a loss followed by the buyback of the same type of crypto.”

Speaking to Cointelegraph, David Kemmerer of cryptocurrency tax software company CoinLedger said losses in 2022 could be an “opportunity” to lower the tax bill, with asset losses subject to capital gains and annual income of up to $3,000. to fulfill

“It is important to remember that fees for exchange and blockchain gas generate tax benefits,” David Kemmerer added, as the fees “can be added directly to the cost base of the asset associated with the acquisition of the cryptocurrency.” Is.”

He added that fees associated with cryptocurrency sales can be deducted from income to reduce capital gains tax.

While the IRS has somewhat clear guidelines on the taxes due when buying and selling

Source: CoinTelegraph