The tax deadline (May 17, 2021) is fast approaching. If you had cryptocurrency transactions during 2020, here’s exactly what you should do to file your taxes accurately on time.
Representation of Bitcoin cryptocurrency is seen in this illustration photo taken in Krakow, Poland … [+] on April 27, 2021. (Photo Illustration by Jakub Porzycki/NurPhoto via Getty Images)NurPhoto via Getty Images
Taxable Vs. Non-Taxable Transactions
First, see if you had any taxable transactions during 2020. Below is a non-exhaustive list of taxable and non-taxable cryptocurrency transactions.
Cryptocurrency taxable & non-taxable transactionsShehan Chandrasekera
If you didn’t have any taxable transactions, you generally don’t have any cryptocurrency specific filing requirement. However, some non-taxable transactions such as receiving a gift may trigger you to check “Yes” on the virtual currency question on Form 1040 ‒ “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
Information gathering is the next step. Log in to your exchanges, wallets and other platforms to see if there’s any tax documents (Ex:- Form 1099-K & Form 1099-B) in the Tax center. Proceed to the next step if you see a Form 1099-K and/or a Form 1099-B with incomplete cost basis. Make sure to download the transaction history report if you don’t see any kind of tax forms.
If you see a Form 1099-B with cost basis information (unlikely), you can skip the next step and directly go to tax filing.
Cryptocurrency Tax Software
Once you have all the transaction data, you can use a cryptocurrency tax software to reconcile your transfers, trades and other transactions to arrive at capital gains (or loss) and other income you need to pay taxes on. Without this reconciliation, you could be underpaying or overpaying taxes.
(Note that cryptocurrency tax software don’t generally file your taxes with the IRS. They only reconcile the capital gains and losses related to crypto activity)
File Taxes With The IRS & State
Once the capital gains and losses are fully reconciled using a cryptocurrency tax software of your choice, you can use a self-serve tax filing software like TurboTax or an accountant to actually file your tax return with the IRS and the state.
Disclaimer: this post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.