Although it’s not the most fun aspect of investing in cryptocurrencies, if you’ve chosen to do so in the last year, you need to learn how taxes on crypto work. Many people underestimate the importance of filing their crypto taxes and think it’s not necessary given that crypto is decentralized and unregulated. However, in the eyes of the IRS, cryptocurrency is still considered a digital asset, meaning you are responsible for properly reporting any gains or losses on your tax return.
Filing your crypto taxes isn’t as daunting a task as it might seem initially, and this article will explain why filing your cryptocurrency taxes is important and outline five key reasons to do so.
The IRS Is Now Paying Attention to Cryptocurrency
The Internal Revenue Service (IRS) is now focusing on cryptocurrency. This means if you own, trade, or receive cryptocurrency, you will need to pay tax on it. It is important to understand the consequences of not filing these taxes as they can be severe, including substantial fines or even criminal prosecution.
Fortunately, by taking steps to accurately file your crypto taxes with the IRS, you can avoid any potential penalties and ensure that you remain within the law. But, tax filing can seem complicated, and luckily for you, there are online tools that can help you in this matter. For instance, CoinTracker is a simple tool that allows you to monitor your crypto portfolio, as well as the tax reports so that you can stay on the right side of the law.
Keep a Record of Your Crypto Activity
Filing taxes not only gives you an accurate picture of your crypto activity, but it will also prove to be invaluable in case of an audit. Not only does filing your taxes help avoid penalties from the IRS, but it can provide documentation in the event of any legal questions surrounding your trading activities.
For these reasons, filing your cryptocurrency taxes is one of the most important steps you can take as a trader or investor. Don’t wait until it’s too late; take ownership of your crypto activity today by filing your taxes.
Deduct Losses From Your Crypto Investments on Your Taxes
If you have endured losses related to your cryptocurrency investments, you may be able to turn them into a tax benefit. With the right information and forms, it is possible to file for deductions for your crypto-investment losses as well as capital gains taxes.
This means that if you have taken a hit from investing in crypto in the past year, you can save some money on your taxes by filing correctly and efficiently.
Deductions come with specific guidelines, so be sure to familiarize yourself with them or seek the assistance of an expert to make sure that your crypto-related tax situation is handled correctly.
Keep Track of Your Crypto Activity for Future Years
Filing your crypto taxes can provide great insight into your overall financial activity. Keeping records of what you have earned and spent over the years can be a useful asset that you should hold onto for future use. It’s like having an exact account of all your purchases which can be very helpful when creating a budget or seeking investment advice.
Filing taxes helps you keep track of your cryptocurrency activity so you can understand how each purchase affects your finances and inform any major decisions in the future.
Avoid Penalties From the IRS
Filing your crypto taxes might not be a fun task to tackle, but in the long run, it’s way better than incurring penalties from the IRS. At the end of the day, being proactive and opting for safety is always preferable to taking risks. Relying on luck and hoping you won’t get audited is not a wise decision. It’s only a matter of time until you come across unexpected roadblocks if you try to evade your responsibility.
Keeping accurate records of your crypto activity and filing your taxes correctly and on time is far better than dealing with the consequences. Not only will this ensure that you stay compliant with rules and regulations, but it may also save you money in penalties or interest payments in the future.
Bottom Line
As the world of cryptocurrency becomes more and more popular, it’s important to be aware of the tax implications. The IRS is now paying attention to crypto, so it’s time to file your taxes in order to stay on the right side of the law. But if penalties aren’t enough of a motivation, we’ve listed four other reasons why you should file your taxes on time.