<div fs-richtext-component="info-box" class="info-box"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4cef4c34160eab4440_Info.svg" loading="eager" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Starting January 1, 2024, the Infrastructure Investment and Jobs Act requires reporting 10,000$+ crypto transactions to the IRS. Yet, the Treasury and IRS deferred digital asset reporting until new regulations are set, promising future guidance and public input on these rules. We keep you informed! </p></div></div></div>
Introduction to Crypto Taxes
<div fs-richtext-component="tax-status-capital-gains-tax" class="tax-status-pills"><div>Capital Gains Tax</div></div> <div fs-richtext-component="tax-status-income-tax" class="tax-status-pills"><div>Income Tax</div></div>
The IRS views cryptocurrencies as property, triggering capital gains taxes for transactions like trades and sales, and income tax for mining or receiving crypto. This necessitates strategic tax planning for effective portfolio management.
Successfully navigating these obligations to reduce liabilities involves understanding the intricacies of crypto taxation. Handling short-term capital gains from trading or income from mining critically affects your tax bill. For thorough tax strategy insights and guidance, the Blockpit US tax guide is a vital resource. It's about strategically fulfilling tax duties to align with your financial objectives.
What Triggers Taxable Events?
Navigating cryptocurrency taxes requires understanding what constitutes a taxable event. Taxable events are actions that result in capital gains or losses, impacting your tax obligations:
- Trading one cryptocurrency for another
- Selling crypto for fiat currency
- Using crypto to purchase goods or services
- Earning crypto through mining or staking
Recognizing and documenting these events is crucial for accurate tax reporting and compliance with IRS regulations. By identifying these key taxable events, you can better manage your tax responsibilities and avoid surprises during tax season.
Do I Need to Declare Cryptocurrency on My Tax Return?
Yes, in the US, declaring cryptocurrency transactions on tax returns is mandatory.
The IRS uses various forms for different crypto activities: Forms 1099 for income, Form 8949 for capital gains, and Form 1099-B for other transactions. Form 1099-MISC is for crypto compensation, and Form 1099-NEC for payments to non-employees. Besides these, other 1099 forms cater to specific crypto reporting needs.
The 2023 Update on Digital Assets
In 2023, the IRS updated the tax return process with Form 1040 for 2022, now including a 'digital assets' section. This addition asks taxpayers about any transactions with digital assets, enhancing clarity and compliance.
Furthermore, there's a proposal suggesting that, starting January 2026, crypto brokers (like exchanges and wallets) might be mandated to issue Form 1099-DA. This would report users' digital asset transactions, aiming to streamline tax reporting for both users and the IRS.
The Role of Crypto Brokers in Tax Reporting
Starting in 2023, US crypto exchanges are mandated to gather tax information from users to facilitate the issuance of 1099 forms to both the individuals and the IRS.
These forms, crucial for reporting non-employer income, vary in type, though the legislation's required data aligns closely with that of Form 1099-B. Currently, US exchanges often issue one of three specific 1099 forms, reflecting the diverse transactions users engage in. This shift underscores the increasing formalization of crypto assets within the tax system, affecting both users' reporting responsibilities and brokers' operational processes.
Step-by-Step Guide to Reporting Cryptocurrency Taxes in the US:
1. Calculate your crypto capital gains and losses
To calculate your crypto capital gains, you need to determine your cryptocurrency’s cost basis and fair market value (FMV) at the time of the taxable event. The taxable event can be selling, trading, or exchanging cryptocurrency for goods or services.
To calculate your capital gains or losses, you can use the formula:
It is important to keep accurate records of all cryptocurrency transactions, including the date, amount, FMV, and cost basis, to correctly calculate your capital gains or losses.
2. Complete IRS Form 8949
IRS Form 8949 is for documenting cryptocurrency capital gains and losses. It's specifically designed to report each crypto sale made during the tax year.
For a detailed guide on completing this form, refer to our comprehensive article on IRS Form 8949 and Schedule D.
3. Transfer the totals from Form 8949 to Form Schedule D
Schedule D, which accompanies Form 1040, is where you report gains and losses from various sources. Alongside cryptocurrency gains, it includes reporting for other items like Schedule K-1s from businesses, estates, and trusts.
Schedule D summarizes your capital gains and losses. After completing Form 8949, transfer your total net gain or loss to Schedule D. Again, refer to our specific article for more details.
4. Cryptocurrency income
When earning cryptocurrency income from activities like mining, staking, or as payment for services, you'll recognize ordinary income based on the crypto's fair market value upon receipt.
To report this income, you may use either Schedule 1 or Schedule C, depending on the nature of your earnings:
- Schedule 1 is typically used for reporting ordinary income from airdrops, forks, or other crypto wages.
- Schedule C is utilized for self-employment income, such as earnings from running a crypto mining operation or receiving payments for services rendered.
5. Finish your tax return
With your capital gains and income reported, you're now done recording all crypto-related transactions for your tax return. Well done! After completing the remaining tax forms, you'll be prepared to submit your tax return to the IRS.
Utilizing Tax Software for Crypto Reporting
Crypto tax software simplifies the daunting task of tax preparation by automating transaction recording and reporting. It accurately tracks gains, losses, income, and expenses, eliminating manual calculations across platforms.
These tools, like Blockpit, import transaction history and calculate tax information, pre-filling essential forms such as Form 8949 and Schedule D. This ensures accuracy and saves time. It also streamlines the tax preparation process and ensures compliance with local tax laws, such as those in the US.
Optimize & File Your Crypto Taxes With Blockpit
Blockpit creates the most comprehensive crypto tax reports in PDF format. The report provides information about all your balances and transactions and can be used as proof of origin with banks or tax advisors. It contains all relevant transactions of your account in the selected tax year and shows details such as timestamp, amount, asset, costs and fees of the individual transactions.
Using Blockpit couldn’t be easier:
1. Import your transactions
Blockpit offers direct integrations for crypto exchanges, wallets and DeFi protocols. Automatically import your transactions via API integration, wallet address synchronization, or by manually uploading an Excel file.
Discover all crypto integrations
2. Validate & Optimize
Blockpit offers smart insights and suggestions to optimize your tax report, fix issues, add missing values and to validate your transactions.
3. Generate your tax report
Generate your compliant tax report with the click of a button. Our tax engine calculates your tax report on the basis of the US tax framework.
