Tips for the Right Bitcoin Tax Returns Right in 2022

The Internal Revenue Service (IRS) is always looking at ways to collect income from citizens, including transactions made with cryptocurrencies, such as Bitcoin.

What's the big picture view? Digital assets and currencies you buy, sell, mine, trade, or use as payment are taxable. Taxable income is also considered if your employer or client credits you in cryptocurrency. If you have transactions in cryptocurrency that are convertible to U.S. dollars, you must report those values when you file your taxes.

Here are some rules on filing Bitcoin tax returns (and other e-currencies) properly in the form of helpful tips and (legal) tricks!

File Them Like You Do Other Income Streams

The IRS classifies cryptocurrencies, like Bitcoin, as property rather than currency. The income is taxable based on its most recent estimation if you receive payment in cryptocurrency. If you sell an e-currency for a profit and take the resulting capital gain, you are taxed on the purchase price difference against the sale proceeds.

However, your circumstances depend on how you pay Bitcoin tax returns (or other cryptocurrencies). If you mine cryptocurrency, the value from mining is a taxable income at that time. If you use e-currencies to buy goods or services, you owe taxes if the realized value is more significant than your original acquisition price. You may have a capital gain that’s either short-term or long-term, depending on how long you held the crypto before disposing of it.

Track Your Earnings and Their Value

Though crypto tax legislation has not changed much in recent years, the onus remains for e-currency traders to track their gains and losses.

Trends and fluctuations in the crypto market often make estimating one’s crypto gains and losses difficult. That’s why traders must determine when crypto was bought, used, sold, mined, etc., which is as important as knowing the coin's most recent market value. Both are necessary for paying crypto tax.

One way for people to stay on the right side of the rules is by keeping thorough records of their crypto transactions.

Some people may not realize that they need to pay taxes on their bitcoin transactions. Many corporations will begin sending Form 1099-K to individual taxpayers who receive more than $20,000 in cash deposits and complete 200 transactions a year. However, whether or not the taxpayer receives these forms or has reached these thresholds, they still need to file their Bitcoin tax returns on all cryptocurrency transactions that result in capital gains or losses.

You could avoid the penalties if you haven't paid your crypto taxes due to honest mistakes or stances beyond your control. However, you should expect the IRS to watch how taxpayers report their Bitcoin transactions closely.

You Can Get Tax “Exemptions” through Capital Losses

Yes, there are exemptions when filing Bitcoin tax returns — they’re called capital losses. So while cryptocurrency taxes are a hassle, you can get deductions if you have capital losses on Bitcoin or other digital assets. You can deduct these losses from your further capital gains on stock sales. However, when you've tallied your gains and losses, you can't write off a loss of more than $3,000.

With drastic fluctuations in crypto prices, many speculators will have tax losses. If you record losses on Bitcoin or any other cryptocurrency, declare them on your taxes to see if you can reduce tax liability.

The Conclusion on Cryptocurrency Tax

If we could summarize this article in one word with multiple synonyms, we’d go with “vigilance,” “stewardship,” “caution,” and “responsibility. The added caveat of earning from e-currency is tracking their most recent value to give the government what’s theirs without any consequence on your end. Do so with eagle eyes and a ready mind after this article.

For more information on Bitcoin tax returns in Denver or other cryptocurrency concerns, go to Tottax’s website right now! We’re a tax and accounting agency that offers personalized business consulting depending on your needs and goals across America’s 50 states! Let us solve your problem by hiring us now!