Filing taxes is never a walk in the park. There are always special forms you need to fill out correctly and other information you have to gather to send into the IRS. Even with a tax agency helping you out, it can still turn out to be a nightmare, especially when you wait to do your taxes last minute (we’ve all been there).
Filing taxes can become extra tricky when you throw in the complexity of cryptocurrency. Since it’s not physical cash, how does it get taxed? Fortunately, there are a few steps you can take to make filing for a cryptocurrency tax much more straightforward.
Check out these three simple solutions to make tax day less of a headache in 2020.
#1 Know What You Qualify For
With cryptocurrency, there are some cases where you can qualify for more deductibles. For example, if you are a crypto miner (a person who verifies certain cyber currency transactions), you may be qualified to deduct certain things such as the equipment you use for crypto mining, the electricity used while performing crypto mining tasks, repairs, as well as the space you are renting.
If you do a little bit of research to figure out what you do and don’t qualify for, it will make filing your taxes for your cryptocurrency go much quicker. Learning where you stand now, instead of waiting until April 14th, the day before your taxes are due, gives you time to ensure you’ve done your taxes correctly or if you need to ask questions. If you’re rushing to get your taxes done, you’re more likely to make a mistake, which could delay your tax refund, so don’t do that. Plan and start things sooner rather than later.
#2 Keep Track of Crypto Assets, Gains, and Losses
As tedious as it may sound, keeping track of your cryptocurrency is a great way to make filing them for taxes much more comfortable. You can keep track of what you are buying and selling with an excel sheet template.
Keeping track of your cryptocurrency offers a ton of benefits. By keeping track, not only will your taxes be easier to get through, but you’ll also be on top of where you’re at financially with your cryptocurrency—no more wondering where things are at financially with your cryptocurrency. Just think of it as another ‘bank account’ to keep track of what you spend and what you make.
Keeping a record can also help you develop strategies for when you want to buy and sell because you’ll be able to see patterns in the market. If you end up having any losses through your cryptocurrency, you won’t actually get taxed on it. That being said, you do have to keep track of your losses.
So be sure to include an area in your spreadsheet that allows you to add up the losses for the purposes of deducting them on your taxes. The great thing about having a record of your gains and losses is now you have tangible proof. If something goes wrong with your taxes for some reason, you’ll have documented proof to back you up.
Not only can you keep track of your cryptocurrency in a spreadsheet, but you can also organize your ‘to-do’ list of what you need to gather to submit your taxes correctly. It never hurts to be on top of things and organized. Why not give it a try?
#3 Hire a Crypto Tax Service
Alternatively, if you have a hard time remembering to keep track of things, you can use a service that uses a cryptocurrency tax software to keep track of all the numbers for you. Many services can provide answers to all your questions and keep everything aligned and ready for Tax Day.
Hiring a service can give you peace of mind with your taxes. Filing taxes can be daunting, and if you mess them up, there could be significant consequences. So, hiring a service to file them is going to be your best option. You’ll get expert help and the service you go with will be familiar with the industry and will know exactly what to do when it comes to taxing cryptocurrency.
That being said, it’s still really helpful to keep track of your cryptocurrency and know what you qualify for. Your tax provider will need that information to help you file your cryptocurrency taxes. But if you follow these steps, you’ll be well on your way to having a very happy Tax Day in 2020.