Simplifying Crypto Tax Reporting: What Info Your Accountant Really Needs (2024)

FAQs

Simplifying Crypto Tax Reporting: What Info Your Accountant Really Needs? ›

Summary: Get a complete record of your transaction history, and then calculate your gains and losses from each disposal. Every time you dispose of your cryptocurrency, you'll recognize capital gains or capital losses

Receipts of your cryptocurrency purchase. Records of agent, accountant, and legal costs. Exchange records. Digital wallet records.

Reporting your crypto activity requires using Form 1040 Schedule D as your crypto tax form to reconcile your capital gains and losses and Form 8949 if necessary. You report your total capital gains or losses on your Form 1040, line 7.

You owe taxes on any amount of profit or income, even $1. Crypto exchanges are required to report income of more than $600, but you still are required to pay taxes on smaller amounts. Do you need to report taxes on Bitcoin you don't sell? If you buy Bitcoin, there's nothing to report until you sell.

The IRS can audit you if they have reason to believe that you are underreporting your taxable income from cryptocurrency. Typically, the limit for conducting an audit is three years after a taxpayer has filed their tax return.

A professional crypto tax accountant stays current shifting tax regulations in crypto and works to help their clients properly file their taxes and minimize their tax liability while remaining compliant.

Cryptocurrency transactions are traceable, requiring exchanges to report to the IRS, necessitating diligent reporting by users. The IRS uses advanced methods to monitor crypto transactions, ensuring tax compliance.

US taxpayers must report any profits or losses from trading cryptocurrency and any income earned from activities like mining or staking on tax return forms, such as Form 1040 or 8949. Not reporting can result in fines and penalties as high as $100,000 or more severe consequences, including up to five years in prison.

If you're holding crypto, there's no immediate gain or loss, so the crypto is not taxed. Tax is only incurred when you sell the asset, and you subsequently receive either cash or units of another cryptocurrency: At this point, you have “realized” the gains, and you have a taxable event.

Do I report crypto if I didn't sell? ›

If you received crypto as income, you do need to report it as income, even if you didn't sell it.

You must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.

Complete Form 8949 to document your cryptocurrency transactions. Transfer the totals from Form 8949 to Schedule D of your tax return. Report any ordinary income from cryptocurrency on Schedule 1 of Form 1040 unless you're self-employed, in which case you should use Schedule C.

Under some circ*mstances, Coinbase does report to the IRS, but that doesn't imply the individual taxpayer is not responsible for reporting. Coinbase's reports to the IRS can include forms 1099-MISC for US traders earning over $600 from crypto rewards or staking in a given tax year.

Failure to properly report can lead to penalties and increased scrutiny from the IRS, and if you don't report crypto losses, you cannot use them to offset capital gains or income.

Cryptocurrencies as intangible assets are initially recorded at cost (i.e., the price they were bought for). Later on, their value is adjusted by subtracting amortization over time (if any) and losses due to value drops. Any increase in value after a drop is considered income.

FIFO (first-in-first-out), LIFO (last-in-first-out), and HIFO (highest-in-first-out) are three accounting methods used to calculate cryptocurrency gains and losses. To better understand how they work, let's calculate capital gains on the following transaction using each one of these methods.

Under IFRS, where an entity holds cryptocurrencies for sale in the ordinary course of business, the cryptocurrencies are considered to be inventory and should be accounted for in terms of IAS 2 Inventories. Inventories are typically measured at the lower of cost and net realisable value.