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August 3, 2022

Bitcoin (And Other Cryptocurrencies) Tax Calculator: A Guide

Before we get to our Bitcoin tax calculator and how it makes the crypto tax calculation easier, it's worth noting that the IRS has officially released new instructions for 1040 forms. Cryptocurrencies are now defined as "virtual currency" and must be reported on a 1040 form beginning December 31st, 2020.

If you bought Bitcoin or other cryptocurrencies in the United States during the year, you must now state your purchase on your 1040 tax form when responding to the question, "At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?" If you didn't buy anything crypto in 2021, you can skip this question. It does not matter whether you hold or move money between wallets.

What Is A Crypto (Bitcoin) Tax Calculator?

Cryptocurrencies are a fascinating and cutting-edge financial asset class. They speak to our thirst for new technologies and our goals for personal wealth. While Bitcoin and other cryptocurrencies hold promise for both investors and techies alike, the legal issues surrounding trading and possessing cryptocurrency remain perplexing for most of us.

You are subject to federal taxes if you are a citizen of the United States and own any cryptocurrency, such as Bitcoin. Because crypto is still a new idea and the financial infrastructure surrounding it is not heavily built out, most people find calculating its tax difficult, which is why a Bitcoin tax calculator (BTC) comes in handy.

A Bitcoin tax calculator is essentially just software that helps Bitcoin owners calculate short and long-term capital gains taxes on profits or losses from bitcoins. Simply filling in the required information on the calculator allows you to determine whether you owe short or long-term capital gains taxes, based on how long you have held your bitcoin.

There are several phases and techniques to calculate and utilize a cryptocurrency tax calculator. These necessary calculations are:

  • Tax rate
  • Capital gains and/or losses
  • Accounting method (HIFO/LIFO)
  • Tax Loss Harvesting
  • Cost basis
  • Foreign currency reporting

A recent IRS ruling classifies Bitcoin and other cryptocurrencies as property, not fiat currency, according to the Tax Cuts and Jobs Act. That implies that when you sell or trade Bitcoin, you must declare capital gains or losses.

Capital gains are the difference between the price at which you sold a cryptocurrency asset and the price of when you purchased it. As a result, capital gains calculations include all crypto assets acquired or sold throughout the year minus your cost basis (the price at which you bought or received the asset).

The amount of money owed in taxes is based on how long the asset was held; assets held for less than a year (short-term capital gains) are taxed at a higher rate than those held for more than a year but less than two years (long-term capital gains).

At a high level, it's not difficult. But when you factor in the record-keeping required for each transaction, as well as the rules for calculating bitcoin and crypto taxes, as well as how they change based on a few criteria, an automated solution is essential. Ledgible's crypto tax calculator handles every trade and wallet within an exchange, ensuring they are meticulously assessed and calculated in a matter of minutes.

Now that you understand why you might want to get bitcoin taxes off your plate and into an automated software solution, let's look at what makes Ledgible the best Bitcoin tax calculator. What about Ledgible distinguishes us from the competition? Let's discuss how to compute tax for cryptocurrency as well as a few of Ledgible's market differentiators

Superior Customer Support with Ledgible

You've likely got concerns about how to stay on the correct side of the IRS when it comes to your Bitcoin taxes. You don't want to be caught off guard and end up owing more money than you intended.

We're also the experts at assisting you in getting your data out of your exchanges and wallets! With over 450+ native integrations, we know how to get your data out, formatted, and uploaded properly. We've also published more than 300 crypto tax support articles online, with live chat assistance available seven days a week!

You can take a look at some of our reviews below to get a better idea of the kind of service Ledgible offers.

How Are Bitcoin Taxes Calculated?

The first thing you need to do is determine your cost basis—this is the price you paid for the Bitcoin, or the fair market value of the Bitcoin at the time it was mined (if you mined it yourself). Your cost basis also includes any transaction fees you paid when purchasing or selling the Bitcoin.

Once you have your cost basis, you can calculate your capital gains (or losses) by subtracting your cost basis from the sale price of the Bitcoin. If the resulting number is positive, you have a capital gain; if it's negative, you have a capital loss.

The next step is to determine your tax rate. Short-term capital gains are taxed at your marginal tax rate, which depends on your income; long-term capital gains are taxed at a lower rate—generally 15 or 20 percent.

Finally, you need to figure out how to report your Bitcoin taxes. The IRS has not yet issued guidance on how to do this, but there are a few options available. One option is to file Form 8949 with your annual tax return; another is to use a dedicated cryptocurrency tax software like Ledgible.

If all of that sounds confusing, not to worry, the Ledgible tax calculator automates that entire process and makes it simple, for you or your tax professional.

What Distinguishes Ledgible From The Competition?

In the world of cryptocurrency taxes, there are a few key features that distinguish Ledgible from the competition:

Accuracy: With over 450+ integrations, we can automatically import your data from exchanges and wallets, ensuring that all of your trades are accounted for. We also have a team of blockchain engineers and CPAs on staff to help ensure the accuracy of our calculations.

Ease of Use: Our platform is designed to be as user-friendly as possible—you can upload your data in a matter of minutes, and our algorithms will do the rest. We also provide live chat support seven days a week, so you can always get answers to your questions.

Price: We offer a free plan for those with simple tax situations, and our paid plans start at just $49 per year. We also offer a discount for users who pay their taxes in cryptocurrency.

Customer Support: We have a team of blockchain engineers and CPAs on staff to answer your questions and help you with your tax return. We also offer live chat support seven days a week.

Security: Ledgible is SOC 1 & 2 Type 2 Audited, the highest level of independent data security an organization can achieve.

To learn more about Ledgible, or to sign up for our free trial, visit our website today!

When do I need to file a tax report?

Are you trying to figure out what the IRS Tax filing deadline for 2023 is? Then look no further than this post. The tax filing deadline for regular filers for the 2022 tax year, is:

April 15, 2023

Mark your calendars! Missing the tax filing deadline without filing an extension means that the IRS can hit you with penalties and interest on your taxes owed. If you do end paying your taxes late, you can expect to pay a .5% monthly penalty on the amount due, up to 25% on top of your originally owed taxes, plus interest.

While that may not seem too bad if you're in a pinch, there's another thing to consider too, you might miss out on being able to claim tax credits. Long story short, paying your taxes on or before the deadline has some significant benefits and will keep you out of trouble and audit risk with the IRS.

You can read more about the tax deadline in our post here. Of course, if you use the Ledgible Bitcoin/Crypto tax calculator, the platform ensures you file on time.

What are and aren't the taxable events in crypto?

The following are generally accepted to be taxable events with cryptocurrency:

  • Selling cryptocurrency for fiat currency
  • Selling cryptocurrency for another cryptocurrency
  • Using cryptocurrency to purchase goods or services
  • Converting one cryptocurrency to another

The following are generally accepted as not being a taxable event with cryptocurrency:

  • Buying cryptocurrency
  • Gifting cryptocurrency
  • Donating cryptocurrency to a charity
  • Transferring cryptocurrency from one wallet/address to another, including to cold storage

You can read more on this topic in a longer post here.

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