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Crypto Taxes 101: What to Know, & How to File With Ease

Table of Contents

Understanding the Basics of Cryptocurrency Taxation

Navigating the complexities of crypto taxes can be a daunting task. Crypto Taxes Understanding the tax implications is crucial whether you’re a seasoned trader or new to the digital asset space. This comprehensive guide simplifies cryptocurrency tax essentials, ensuring compliance while avoiding common pitfalls. For personalized assistance, Crypto Taxes Onchain Accounting offers expert advice and services to make your crypto tax filing seamless and efficient.

What Constitutes a Taxable Event Crypto Taxes?

Understanding what constitutes a taxable event is the cornerstone Crypto Taxes of crypto tax compliance. In the eyes of the IRS, most transactions involving cryptocurrency are considered taxable events. These events trigger reporting requirements that you must adhere to. You may wonder, “Do you have to pay taxes on crypto?” The answer is yes, in most cases Crypto Taxes.

Before diving into the key points below, it’s essential to note that these categories aren’t mutually exclusive. A single transaction can have implications for both capital gains and income tax.

  • Selling Crypto for Fiat: This straightforward taxable event triggers capital gains tax.
  • Crypto-to-Crypto Trades: Exchanging one cryptocurrency for another also incurs capital gains tax.
  • Mining Rewards: These are considered income and are subject to income tax.
  • Receiving Crypto for Services: If you’re paid in crypto, it’s taxable income.

When discussing taxable events, it is additionally quintessential to understand the legalities + regulations associated with personal loans. Specifically, personal loans can be made by a bank, an employer, or through peer-to-peer lending networks, and because they must be repaid, they are not taxable income. If a personal loan is forgiven, however, it becomes taxable as cancellation of debt (COD) income, and a borrower will receive a 1099-C tax form for filing.

Understanding these taxable and non-taxable events is the first step in ensuring compliance. Here at Onchain Accounting, we can help you accurately identify and report these events, saving you time and potential legal complications.


Crypto Taxes


The IRS Crypto Question

The IRS has abundantly clarified that crypto transactions shouldn’t be ignored. The first question on your tax return specifically asks about your financial interactions with virtual currency. Answering this question truthfully is not optional; it’s a legal requirement.

If you’ve had any financial interest in virtual currency, you must attach a complete crypto tax report to your return. This report should detail all your transactions, including trades, sales, and income received in crypto. Onchain Accounting offers services to help you compile this report, ensuring you answer the IRS crypto question confidently.

Tax-Free Crypto Transactions

While many crypto-related activities are taxable, some exceptions exist. Knowing what these are can help you plan your transactions more effectively.

Before considering these points, it’s worth noting that even tax-free activities should be documented meticulously.

  • Purchasing crypto with USD or fiat currency: This is not a taxable event.
  • Holding crypto: If you’re merely holding onto your crypto assets, you’re not triggering a taxable event.
  • Transferring between your own wallets: As long as the assets remain in your possession, moving them between your own wallets is not taxable.

After considering these points, it’s clear that not all hope is lost regarding tax-free crypto activities.

However, it’s crucial to document even these transactions meticulously. Onchain Accounting can assist you in keeping track of these activities, ensuring that your records are comprehensive and IRS-compliant.

How to File Your Crypto Taxes

Filing your crypto taxes begins with filling out tax form 8949 – Sales and Other Dispositions of Capital Assets. Form 8949 will detail trades resulting in long-term and short-term capital gains and losses. Once the form is properly completed, a business or individual can provide their traditional tax accountant with the 8949 form to include in their tax filing. 

Outside of tax form 8949, filing your crypto taxes involves several steps, from calculating your capital gains and losses to reporting any income received in crypto. Let’s explore these aspects in detail.

Calculating Capital Gains and Losses

Calculating capital gains or losses is vital to filing cryptocurrency taxes. The formula is simple: The selling price minus the purchase price equals your capital gain or loss. Although, the application can be complex due to the volatile nature of crypto markets.

Onchain Accounting uses specialized software that accurately and efficiently calculates your capital gains and losses, considering the specific time frames and rates that apply to your situation. Our thorough processes and specialized tools saves you time and ensures accuracy in your tax filing.

Reporting Income in Crypto

If you’ve received cryptocurrency as income, it’s essential to report it. The IRS requires you to convert the value of the cryptocurrency to USD at the time of receipt and include it in your gross income. This applies to mining rewards, staking, and any form of payment received in crypto.

Onchain Accounting can help you accurately determine the USD value of your crypto income, ensuring that you report the correct amount to the IRS. Our services are designed to keep you compliant while minimizing your tax liability.

Record-Keeping and Documentation

Proper record-keeping is the backbone of hassle-free crypto tax filing. You should maintain detailed records of all transactions, including dates, amounts, and parties involved. This is crucial not only for compliance but also for auditing purposes. Onchain Accounting provides robust solutions for maintaining these records. Our platform integrates with various exchanges and wallets, automatically updating your transaction history and preparing it for tax season.

Your Roadmap to Crypto Tax Compliance and Ease

Understanding and complying with crypto tax regulations is non-negotiable. This overview serves as your crypto taxes premier guide, but each individual’s unique situation may require specialized attention.

Onchain Accounting is your go-to platform for all your taxes on crypto needs, from basic compliance to complex tax strategies. Don’t leave your compliance to chance; let us help you navigate the intricacies of crypto taxes with ease.