From the meteoric rise of bitcoin to the pumping of some of the most notorious meme coins in the game many people have made millions by holding. Others got the rug pulled out from under them by investing in squid game-themed cryptocurrencies and others regardless of whether you’re riding around in your bitcoin Lambo now or taking out a third mortgage to cover your losses now comes the time to pay taxes.
How is Crypto Taxed
What stock is a stock otherwise known as a share is a financial token or instrument that signifies ownership of a company in some proportion. Basically, if amazon had 1000 shares and you bought one share you would own 1 1000th of amazon in reality amazon.
IRS is stepping up its game and enforcing crypto taxes across the board now while one solution to avoid taxes on cryptocurrencies might be starting your own country on an abandoned world war ii seafronts unfortunately if you sold or traded crypto in the united states.
You’re probably going to have to pay upon the flip side if you lost a ton of money in crypto then you’ll want to make sure you file taxes so you can claim that loss and reduce your tax burden. But isn’t crypto supposed to be off the grid and how do taxes even work for decentralized digital currencies well let’s break it down simply and stay tuned to the end to hear how today’s sponsor legible can make crypto taxes even simpler.
When you go to file your taxes in the united states the IRS is going to ask you whether you owned crypto so you’re on the hook to answer definitively whether you did or else. If I don’t get tax paperwork from the exchange or wallets or exchanges I traded on commonly known as 1099 in the united states crypto exchanges aren’t required to give you a document detailing all the trades you made in a year.
But the big surprise here the IRS still expects you to report it all what do you do if you sent crypto from your wallet to an exchange swap that coin for another sent it to another exchange and then you cashed out what do you even pay taxes on in that string of transactions well any gains you make are treated as capital gains by the IRS.
So if you traded or sold crypto that you held for under a year you pay short-term capital gains taxes and if you traded or sold crypto you owned for over a year you’ll get a slight break on taxes and pay long-term capital. Gains this luckily makes the answer to how much tax do I have to pay on crypto pretty simple and if you lost money you can use your losses to offset other capital gains or realize the loss against your income up to three thousand dollars a year.
It does carry over so that rug pulls you fell for can actually save you some money come tax time all of this still doesn’t answer the question of how you even calculate your capital gains though especially in those more complex scenarios since there’s also gas fees exchange fees and varying exchange and price rates between crypto and fiat currencies crypto taxes can get pretty tricky pretty fast.
So how do you calculate your crypto taxes in these more complex scenarios well you could start going crazy with excel sheets and doing it by hand or you could use legible today’s sponsor legible crypto tax automatically calculates your crypto tax burden you can quickly connect your wallets exchanges and more and then legible crypto tax within minutes can calculate your crypto tax burden providing current year planning and prepare reports for your tax preparer or preferred tax software to do it yourself.
They offer DIY solutions for consumers and professional solutions for tax preparers they’re even independently audited to ensure security for your information you can get started for free by clicking the link in the description so calculating your crypto taxes doesn’t have to be hard but it can get a little messy while IRS is still working on their complete crypto tax guidance in the meantime you’re still expected to pay up.