Last Minute Tax Advice For US Crypto Investors

NEW YORK, April 14 (Reuters) – When accountant Zach Gordon gets calls from clients about how to handle cryptocurrency on their taxes, there’s a common theme.

“They have absolutely no idea,” says Gordon, principal at Grassi Advisors & Accountants in Westchester, New York.

It’s not entirely their fault. The whole arena of cryptocurrencies like bitcoin is so new and rapidly growing that even the Internal Revenue Service itself has long been trying to catch up on how exactly to treat it on US tax returns.

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That being said, the guidelines are becoming clearer as cryptocurrency adoption grows. According to the Pew Research Center, 16% of American adults now say they have invested, traded or used cryptocurrencies.

“For years, people almost considered this to be play money and weren’t as diligent in reporting it,” says Kelly Phillips Erb, tax attorney and publisher of Taxgirl.com. “The IRS is super serious about this now.”

Indeed, you may notice a small mandatory question on your 1040 tax form: “At any time in 2021, did you receive, sell, trade, or otherwise dispose of a financial interest in a virtual currency?

The basic framework is to think of crypto as a stock. If you have held it for the long term, i.e. more than a year, the profits from any sale are subject to capital gains tax. This means a tax rate of 0%, 15% or 20%, depending on your income level.

If you did not sell crypto, there is no taxable event. But with short-term assets less than a year old, the gains from a sale are treated differently – like ordinary income, with a rate determined by your tax bracket.

If you have bought and sold crypto through major exchanges, such as Coinbase or Robinhood, you should receive annual statements which will make reporting easier. Otherwise, be diligent about keeping records on your own.

Where things can get trickier is that more people receive the crypto as a salary or payment for services, in which case it is treated as ordinary income, depending on the value on that particular day.

Similarly, if you used crypto to pay for goods or services, this is considered a taxable transaction, if the value of the currency has increased since you originally acquired it.

TurboTax has a useful interactive calculator to determine your potential tax impact.

A few things to keep in mind as we approach the April 18 filing deadline:

DO YOUR HOMEWORK

The IRS has released answers to frequently asked questions about crypto and a basic explainer and roundup of its publications on the subject.

The exchanges themselves often have helpful tax resources for users, such as Robinhood and Coinbase.

DONATION STRATEGIES

One way to move crypto around without incurring taxes is to donate it. For an individual, you can donate up to $15,000 per year. For charities, you can use sites like GiveCrypto.org to donate directly to those in need and get a tax deduction for your efforts.

That might be a better option than selling it yourself and then donating that money, because then you’ve triggered a taxable event that falls on you.

LOSSES OF USE

Crypto is obviously a volatile asset class. Instead of gains, you might also have losses.

“If you’ve made gains selling crypto, remember that you can offset your gains with losses, just like with stocks,” says Lisa Greene-Lewis, CPA and tax expert at TurboTax. “You can also offset ordinary income (like wages) with up to $3,000 in losses and carry forward the remaining losses.”

REQUEST AN EXTENSION

This is admittedly a touchy subject, especially for those with frequent involvement in crypto. So, since we’re already hitting this year’s filing deadline, there’s no shame in asking for the standard six-month extension. You don’t even have to give a reason.

While that won’t stop you from paying – if you have a rough idea of ​​how much you owe, you can always send it in before April 18 – it will give you plenty of time to consult with tax professionals, settle your obligations and correctly report all transactions. “It’s better to file a complete and accurate statement about the extension, than a rushed and erroneous statement just to get it in before the deadline,” Erb says. “I strongly encourage people to take advantage of it.”

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Last Minute Tax Advice For US Crypto Investors


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