As the popularity of cryptocurrency continues to grow, so does the number of people who are investing in it. And with that growth comes a growing number of people who are making mistakes when it comes to crypto taxes.
If you're one of the many people who are new to crypto taxes, don't worry - you're not alone. The IRS has been slow to catch up with the rise of cryptocurrency, and as a result, there is a lot of confusion about how to properly report your crypto transactions.
To help you avoid making some of the most common crypto tax mistakes, we've put together this list of the top five things you need to know.
1. Not Reporting All of Your Crypto Transactions
This is probably the most common crypto tax mistake. People often think that they only need to report their crypto transactions if they make a profit. However, the IRS considers all crypto transactions taxable events, even if you lose money.
That means that you need to report every time you buy, sell, trade, or send cryptocurrency. If you don't report all of your transactions, you could be subject to penalties and interest.
2. Not Keeping Accurate Records
In order to properly report your crypto transactions, you need to keep accurate records. This includes keeping track of the date, amount, and type of each transaction. You should also keep track of the cost basis of each cryptocurrency you own.
Your cost basis is the amount you paid for the cryptocurrency, plus any additional fees or expenses. You can use your cost basis to calculate your capital gains or losses when you sell or trade cryptocurrency.
If you don't keep accurate records, it will be very difficult to file your crypto taxes accurately. And if you make a mistake, you could be subject to penalties and interest.
3. Using the Wrong Tax Software
There are a number of different tax software programs available that can help you file your crypto taxes. However, not all of these programs are created equal.
Some tax software programs are not designed to handle cryptocurrency transactions. This can lead to errors and mistakes when you file your taxes.
If you're going to use tax software to file your crypto taxes, make sure to choose a program that is specifically designed for cryptocurrency. This will help you avoid making mistakes and ensure that your taxes are filed correctly.
4. Not Filing Your Crypto Taxes on Time
The deadline for filing your federal income taxes is April 18th each year. However, if you have crypto transactions, you may need to file an additional tax return called Form 8949.
Form 8949 reports your capital gains and losses from cryptocurrency transactions. If you have any capital gains, you will need to pay taxes on them. If you have any capital losses, you may be able to deduct them from your other income.
It is important to file your crypto taxes on time. If you file late, you may be subject to penalties and interest.
5. Not Getting Professional Help
If you're unsure how to file your crypto taxes or made a mistake, it's important to get professional help. A tax professional can help you understand the crypto tax laws and ensure that your taxes are filed correctly.
Getting professional help can save you time, money, and stress. It can also help you avoid making mistakes that could lead to penalties and interest.
How Ledgible Can Help
Legible is a crypto tax software that can help you easily and accurately file your crypto taxes. Ledgible supports over 4,000 cryptocurrencies and exchanges, and it can automatically import your transactions from your wallets and exchanges.
Legible also offers a number of features that can help you avoid making crypto tax mistakes. For example, Ledgible can help you calculate your cost basis, track your capital gains and losses, and generate tax reports.
If you're looking for crypto tax software that can help you file your taxes accurately and avoid making mistakes, Ledgible is a great option.
By avoiding these common crypto tax mistakes, you can ensure that you file your taxes correctly and avoid penalties and interest. If you're unsure how to file your crypto taxes or made a mistake, it's important to get professional help. A tax professional can help you understand the crypto tax laws and ensure that your taxes are filed correctly.