Crypto is all the rage right now, and everyone is getting in on it. For those new to cryptocurrency, you may be shocked to find that crypto is taxable. Any income made from trading in cryptocurrency is deemed taxable, so you will have to worry about cryptocurrency accounting.
Therefore, here is everything you need to know about crypto tax accounting as a beginner in cryptocurrency.
What Is Crypto Tax Accounting?
The Internal Revenue Service (IRS) requires that everyone pay tax on all income sources, and thanks to capital gains, cryptocurrency transactions generate income. Any income generated from trading Crypto will be deemed taxable, and when tax reporting, you will be required to add cryptocurrency income.
Crypto tax accounting refers to the process of determining the amount due in tax off cryptocurrency transactions gain. It is worth noting that in the absence of a profit, or when you are holding cryptocurrency, then you won't be due for any tax. Where there is a gain, you will be due to pay tax, and that leads us to account for cryptocurrency.
How To Handle Crypto Tax Accounting
If you are new to crypto investing, trading, mining, and participating in DeFI, you may need to become more familiar with taxation on crypto or Cryptocurrency accounting. Luckily, you aren't the only one in this situation. There are numerous channels that can provide help. Here are some of the best ways to handle Crypto accounting, especially if you are a newbie.
Using Crypto Tax Software
Just as there is accounting software to help you with tax reporting, so is tax software dedicated to helping you determine your Crypto tax accounting. Crypto tax software is explicitly designed to estimate capital gains and the amount due in tax off your cryptocurrency transactions. You will be required to input the details of your trades while the software computes and estimates your profits.
Once your tax has been estimated, you will have to handle the filing and payment yourself, as this software can only estimate your Crypto tax. It is also important to note that crypto tax software is only as accurate as the data you provide. It is, therefore, vital that you provide accurate information and results pertaining to all your transactions.
Should You Hire A Crypto Tax Accountant Or CPA?
If you don't feel capable of handling your Crypto tax or prefer to delegate, then you can hire a tax accountant. A Crypto accountant can estimate your capital gains easily and your tax due once they have access to your transaction records. If you already have an accountant that handles your taxes, they may be able to handle Crypto tax accounting as well.
You can also engage the services of an accountant specializing in crypto tax like Results Tax Accountants. Just as with the use of cryptocurrency tax software, your accountant will only be as accurate as the information shared. You will need to ensure that all information is correct to ensure that you get the current estimates. Unlike cryptocurrency tax software, your tax accountant can file on your behalf.
If You Want To Handle It Yourself…
If you are looking for an option that won't cost anything, you can always handle your Crypto tax yourself. Crypto tax is similar to regular tax, and as long as you can estimate your capital gains, determining the amount due in tax is easy. Since you are new to the process, you may need help at first, but it should become easier and straightforward with time.
Handling cryptocurrency tax personally will involve fewer errors as you have full access to all your transactions. It is worth noting that handling cryptocurrency tax yourself is only feasible when you have few transactions in the tax year. When you have a lot of crypto transactions to worry about, you may be better served to leave it to a professional or use tax software.
Conclusion
With the rise of cryptocurrency, the need to tax capital gains has risen, and the Internal Revenue Service (IRS) has deemed crypto transactions taxable. Failure to report cryptocurrency transactions on your tax will attract the same penalties as regular income. Crypto tax accounting allows you to calculate your capital gains for a taxable year and estimate the total tax.
Author Bio:
Stephan Knight is a nationally recognized, veteran Crypto Tax Accountant with 20+ years of experience in accounting. He currently works at Results Tax Accountants, a firm specializing in helping individuals and businesses with their Cryptocurrency tax and accounting needs. He’s also a co-author of a FREE Crypto tax and accounting blog at www.ResultsTaxAccountants.com/blog