If you are involved in crypto, it's essential to be aware of your tax obligations. Whether you've bought, sold, or exchanged cryptocurrencies during the year, you need to report your gains or losses on the IRS Form 8949.
Unfortunately, filling out the form can take serious time and effort — especially if you’ve used multiple wallets and exchanges during the tax year.
In this guide, we’ll share everything you need to know about Form 8949 before you get started filing your taxes. We’ll also break down step-by-step instructions on how to report your cryptocurrency disposals on your tax return.
What is Form 8949?
Form 8949, known as "Sales and Other Dispositions of Capital Assets," serves as an IRS tax form used for reporting capital gains and losses resulting from the sale or exchange of capital assets.
It allows taxpayers to reconcile the amounts provided on Form 1099-B or 1099-S with the figures reported on their tax return. These forms are issued by brokerages and financial institutions to document investment or real estate transactions.
Form 1099-B is used for broker transactions, while Form 1099-S reports real estate proceeds. However, discrepancies can occur due to missing data or complexities within transactions.
Form 8949 acts as a bridge, ensuring accurate reporting of capital gains and losses. It lets you report each transaction with the correct cost basis, enabling precise calculations of gains or losses.
Who needs to file Form 8949?
Anyone who has engaged in transactions involving capital assets during the tax year needs to file Form 8949. This form is used to report capital gains and losses from the sale or exchange of various types of investments, including:
- Stocks and bonds
- Real estate
- Cryptocurrencies
- Mutual funds
- Exchange-traded funds (ETFs)
- Commodities
- Collectibles
Individual taxpayers, as well as partnerships, corporations, trusts, and estates, are required to file Form 8949 if they have disposed of capital assets and realized gains or losses from those transactions.
However, if all the Forms 1099-B (or substitute statements) you received for your investment transactions show that the basis (the original purchase price) was reported to the IRS, and there are no corrections or adjustments needed, you may not be required to file Form 8949.
How to report your crypto disposals?
To accurately report your gains on cryptocurrency, follow these steps:
- Declare Cryptocurrency Transactions: Near the top of Form 1040, state that you have engaged in cryptocurrency transactions. The IRS requires all filers to disclose whether they've received or transacted in digital currency during the relevant tax year.
- Use Form 8949: Fill the dates of purchase and sale of the cryptocurrency, as well as the corresponding prices. The holding period of your cryptocurrency is essential, as it determines the applicable tax rate. You can download the form from here.
Short-Term Capital Gains: If you owned the cryptocurrency for one year or less, any gain will be taxed at short-term capital gains rates, which are the same as your ordinary income rates. These rates can be as high as 37 percent.
Long-Term Capital Gains: If you held the cryptocurrency for more than one year, it's considered a long-term investment and is eligible for more favorable tax treatment. Long-term capital gains tax rates range from zero percent to 20 percent, depending on your income level.
- Report on Form 8949: Short-term sales are reported on Part 1 of Form 8949, while long-term sales are reported on Part 2. Both sections of the form require details such as:
- Description of property
- Date acquired
- Date sold
- Price you sold it for
- Asset’s cost or other basis
- Gain or loss
- Enter Information on Schedule D (Form 1040): After completing Form 8949, transfer the relevant information to Schedule D. This schedule calculates your net capital gains and losses from all transactions.
- Declaring crypto income: You may earn cryptocurrency income through activities like mining, staking, receiving interest, or receiving it as compensation for work.
The form you use to report your crypto income depends on your specific situation.
- Schedule 1: If you earned crypto from airdrops, forks, or received it as wages, you generally report it as "other income" on Schedule 1 of your tax return.
- Schedule C: If you earned cryptocurrency as a business entity, such as receiving payments for a job or operating a cryptocurrency mining business, it is often treated as self-employment income and reported on Schedule C.
How to submit Form 8949?
- E-file: You will have to enter each transaction separately in the electronic form. Alternatively, you can include Form 8949 as a PDF attachment to your e-filed return.
- Mail: If you choose to mail a paper copy of your IRS e-filed return, you can mail it in the address given in the IRS website.
How Can Kryptos Help You Report Crypto Taxes?
Reporting your cryptocurrency for taxes can be complex. You need to keep a track of all your transactions for different crypto assets. These include their purchase prices and fair market values at the time of disposal, any fees or transactions, tax rates, and much more.
Any error in the calculations can lead to overtaxes or missing out on opportunities to claim deductions. To help you out, Kryptos can automatically do all of this for you in just a few minutes.
All you have to do is upload your wallet address and the platform auto-syncs all your transaction data and figures out your taxable transactions and possible deductions. Once done, you can also generate pre-filled tax forms as defined by the IRS right from the app.
To start calculating your crypto taxes, Sign Up Now for free.
FAQs
1. What is Form 8949, and why is it important for my tax filing?
Form 8949 is an IRS tax form used to report capital gains and losses from various transactions, such as the sale of stocks, bonds, real estate, and other assets. It is important because accurately reporting your capital gains and losses ensures compliance with tax laws and helps determine the taxes owed or the amount of refund due.
2. How does Form 8949 fit into the overall tax filing process?
Form 8949 is a crucial component of your annual tax return. It is used in conjunction with Schedule D (Capital Gains and Losses) to report the details of your capital transactions. The information from Form 8949 is then transferred to Schedule D, which calculates your total capital gains or losses for the year.
3. Who needs to file Form 8949?
You are required to file Form 8949 if you have engaged in transactions that resulted in capital gains or losses during the tax year. This includes selling stocks, bonds, real estate, and other assets. Even if you don't have any capital gains or losses, you may still need to include Form 8949 with your tax return to provide supporting documentation.
4. Are there any exceptions or special cases when it comes to filing Form 8949?
Yes, there are exceptions and special cases that may affect your filing requirements for Form 8949. For example, if you had only small capital gains or losses that meet certain criteria, you may qualify for an exception and not have to report them on Form 8949. Additionally, there are special considerations for situations such as wash sales, gifted assets, and inherited property, which may require additional reporting or adjustments.
5. What are the potential consequences of not filing or inaccurately reporting on Form 8949?
Failure to file Form 8949 or inaccurately reporting your capital gains and losses can have serious consequences. It may result in penalties, fines, or even an IRS audit. It is important to take the time to understand the reporting requirements, seek professional guidance if needed, and ensure accurate and timely completion of Form 8949 to avoid these potential pitfalls.
All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!
