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Do You Need to Pay Taxes on Crypto? [In Collaboration]

By June 15, 2020 No Comments

By now, you probably already know some of the biggest advantages surrounding crypto, which might be why you invested in it in the first place. But, like any other form of income, you do need to pay taxes on it. According to the IRS, there are two ways in which you’d have to pay. 

Let’s say you buy Bitcoin and keep it for a year or longer. You’ll have to pay long-term capital gains on that Bitcoin when you decide to sell. These long-term capital gains will show up on your Schedule D and will be taxed at a certain percentage based on your income. 

If you’ve held onto your Bitcoin for less than a year, you’ll have to pay if the realized value of the Bitcoin is greater than it was when you first acquired it. 

Of course, the idea of paying taxes on crypto hasn’t come without its hiccups. In 2019, for example, Reddit exploded with confusion, frustration, and even anger over the idea of taxing cryptocurrency, with one user suggesting that the IRS’ was “going crypto fishing” and only had bad data to work with, which meant they didn’t know how much money people actually owed in crypto taxes. 

While it can seem confusing (and even frustrating), it’s important to know how crypto taxes work and how they’re calculated, so you can be in the know about your Bitcoin. 

How Are Crypto Taxes Calculated?

An easy way to think about the taxation of cryptocurrency is to consider it a piece of property. That’s exactly the way the IRS looks at it. So, it’s taxed in a similar way to a stock. If you have any experience buying and trading in the stock market, you’ll probably be more familiar with crypto taxation. 

Simply put, you will be taxed on any gains you make with your crypto between the time you acquire it and the time you choose to sell it or exchange it. Your taxes will be calculated on your gains or losses within a period of time. 

As far as the rate, cryptocurrency taxation is based on which tax bracket you fall into. For example, if you’re in the 10-15% income bracket, your long-term capital gains tax rate would be 0%. If you’re in a higher bracket, you could be taxed at up to 20%. 

So, what will you need to calculate your crypto taxes? 

The most important thing is to have a record of your transaction history in order for you to track your tax lots. In addition to that history, you’ll need specific information from each sale, including: 

  • The date of sale
  • Fiat value at the time of sale
  • Date of acquisition
  • Fiat value when you acquired it
  • The amount of the token sold

Obviously, keeping track of all of your exchanges in such detail, one by one, can start to get a bit overwhelming, especially if you tend to make a lot of transactions (hence, people’s frustration and outrage on platforms like Reddit). That’s where a program like CryptoTaxCalculator can help. 

Tracking Your Taxes

Though it may sound confusing, it’s so important to track your crypto taxes, and it doesn’t have to be as complicated as you think. 

When working with a platform like CryptoTaxCalculator, you can do everything from uploading transactions to reviewing data all in one place. That allows for an easy generation of tax reports that are simple to understand even if you don’t have extensive experience with cryptocurrency. We’ll automatically categorize your transaction history to make it easy to know where your exchanges have taken place. 

In the final report of your taxes, we will include a full breakdown of your transaction history that allows you to clearly see each capital gain event. Some of the information you can expect on your report includes: 

  • Cost of trade
  • Currency breakdown
  • Fees
  • Total gross and net gains
  • Long-term gains
  • Amount remaining

Once you receive the report, you can download it in CSV form to make it easy to share with your accountant or to do your taxes on your own. 

If you need more information or have any questions about how CryptoTaxCalculator works or how it can help you to keep your exchanges organized and your data well-documented for your accountant, feel free to contact us via the live chat feature on the app. Crypto taxes don’t have to be as complicated as they might seem. It starts with organization and tracking, and we pride ourselves on making that part easy for you with fast and secure reports, and support whenever you need it most.