Cryptocurrency taxes come with a lot of uncertainty and the ground rules seem to change every day. One such point of confusion is how they can be deducted from your taxes. In this article, we'll explore what you need to do to maximize your deductions and minimize your overall tax bill.
How do I calculate my taxes?
Now, it's time to calculate your taxes. Calculating your cryptocurrency taxes for 2031 is tricky because the industry is so young and the IRS has yet to release many official guidelines. You have two choices here, you can use an automated service or you can do it manually.
With cryptocurrency, manually filing your taxes on the thousands of non-standard transactions, transfers, trades, and more can become a headache quite quickly. Your best bet is to use an automated crypto tax service to get started. Luckily, Ledgible has you covered, and you can get started calculating (and minimizing) your tax bill without spending a dime.
How can I reduce my cryptocurrency taxes?
You can reduce your taxes by generally being smart about which trades you make and when. Since the IRS recognizes crypto and all related transactions as buying and selling of property, nearly every time you trade, sell, or purchase something with crypto, it's considered a taxable transaction - and you need to calculate your gains and losses each time.
Reducing your tax bill means being smart about which transactions you make. Generally speaking, you can reduce not only your crypto tax bill, but also your overall tax bill, by selling any cryptocurrency you currently own at a loss in the fiscal year you're trying to reduce taxes for. Your crypto losses will help draw down your overall tax bill, lowering your taxes. While day-trading cryptocurrency can be fun, when you make a lot of money, it ends up being a lot of transactions you have to pay taxes on.
Essentially, minimizing your cryptocurrency tax bill means strategically selling certain currencies that you may own at a loss so you can "book" the loss against your tax bill. And don't worry, if you still want to own them, you can just buy back in later.
What is the tax rate for cryptocurrency in the US?
The US Tax Code classifies cryptocurrencies as property, not currency. If you purchase cryptocurrency, you need to keep track of the date of acquisition and the cost basis. At the end of the year, you will be required to calculate your gain or loss for each coin on hand and then report it on your tax return.
This complex calculation is what makes crypto tax tools like Ledgible so valuable to traders and CPAs. Ledgible automatically calculates capital gains on all of your transactions and ensures you only pay what you have to.
Looking ahead
In summary, there are many ways to reduce the amount of cryptocurrency taxes you owe. While a general rule of thumb is booking your losing trades on your taxes to minimize your tax bill, there's easier ways to manage this than just keeping the math in your head. Ledgible Crypto Tax has current year planning baked into their application with no cost, so you can monitor your trades throughout the year and see how they'll potentially impact your tax bill, all without having to bust out the calculator.
