4 Savvy Tips for Crypto Investors to Avoid IRS Tax Woes

Money has taken a number of forms over the centuries, and one of the latest entries into the pool is cryptocurrency. Many investors have found success making money in cryptocurrency markets, but trading crypto is a risky business. And just like any other venture, one mistake could cost you.

As this new digital currency is embraced and cryptocurrency investment markets mature, more crypto tax regulations are expected to come into effect. Here are a couple of finance-savvy tips for cryptocurrency investors to make sure they don't end up owing more in taxes than they made trading cryptocurrency. 

1) Hire a Tax Expert

If you're a crypto investor, it might be time to hire a tax expert. Not only will a tax expert help you avoid mistakes that could cost you more than what you're willing to pay to the IRS, but they can help you understand the tax laws surrounding your crypto income.

Be sure to get an accountant that specifically specializes in cryptocurrency so that they have knowledge about the kind of digital currency you're investing in. Some may know about Bitcoin, but there are other forms of crypto, such as Ethereum and NFTs.

2) Be Wary of Exchanging

Exchanging one cryptocurrency for another is probably the most common way for investors to diversify their portfolios. Keep in mind, however, that every transaction involves you converting your cryptocurrency into taxable currency.

Crypto is also recognized as a property or asset, which means it can be subject to capital gains tax depending on the situation. Try to avoid exchanging or seek the help of a tax expert to know when and how to exchange your crypto into dollars.

3) Know When to Mark Yes

Once again, crypto is a taxable asset, and a taxable asset has the potential to be a capital gain. If you have capital gains, the taxes on them are due at the end of the year. The IRS has plenty of questions for crypto investors, which is a must to reply to.

It's important to remember that just because you have dealt with cryptocurrency, that doesn't mean it's automatically taxed. Working with a tax professional can help free you of certain tax obligations.

4) Do Your Research

If you're an active crypto investor, it's important to do your own research when it comes to tax laws. Most of the information on how to file cryptocurrency taxes comes from a third party, and not directly from the IRS.

It's also imperative to note that income tax and crypto tax laws change constantly, so it's vital to stay up-to-date on them. A tax professional whose knowledgeable about crypto and the regulations regarding them should be knowledgeable enough about it.

Conclusion

As cryptocurrency is an emerging technology, more and more regulations are being put in place to help regulate the growing crypto market. Cryptocurrency tax laws are here to stay, so do keep these tips in mind to protect your investments.

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