The IRS is cracking down on crypto users after only a fraction of crypto owners reported on their taxes the last few years. This means that it is important for you to file your Cryptocurrency Taxes. Many crypto users think that they are untraceable but that’s not the case. There are potential dangers to not filing, which I will go through below.
Late to File Fee
The late to file charge is pretty substantial, at 5% of the unfiled taxes per month. This can accumulate very quickly and get out of control. The maximum is 25%.
Late to Pay Fee
The late to pay fee is 0.5% of the unpaid taxes per month up to 25% of unpaid taxes.
According to IRS.com, the “interest is compounded daily and accumulates on the owed amount (the interest rate is equal to the Federal short-term rate, plus 3%).” This can get out of control fast.
Tax evasion is a serious offense and can lead to big ramifications. The easiest way to avoid tax evasion is to pay your taxes. Here at GetCryptoTax we know that filing your taxes on crypto can be stressful and confusing so we made it easy for you. Here’s how to file your crypto taxes!
Cryptocurrency Taxes: The Basics
If you are here then you must be considering filing your cryptocurrency taxes, so let me fill you in quickly on why it’s important to file your cryptocurrency taxes and how to go about doing so. First of all, cryptocurrency has been classified as property, so any gains or losses are in the capital gains or losses category.
Your capital gains tax is based on a few variables that are pretty easy to understand.
Capital gains are equivalent to the amount of money gained by selling something, in this case, cryptocurrency. The math works out to be: sell price – buy price = capital gains.
The Time Held
Short term: If you bought the cryptocurrency and sold it within the same year, then you have what is called short-term capital gains. The taxes based on short term capital gains are similar to the levels of tax on income.
Long term: If there was a year or more between when you bought and sold, it is considered a long-term capital gain or loss. For example, if you bought the cryptocurrency in a past year, let’s say 2017, and sold it in 2018, then you have what is called long term capital gains. The taxes based on long term capital gains are smaller than those on short term gains. Many wealthy individuals hold their investments for longer periods of time to avoid paying short term capital gains taxes.
Your annual income will affect how much you pay for cryptocurrency taxes. The more money you make in a year, the higher the percentage of taxes you’ll pay on capital gains.
If you live in California or one of the other higher taxation states, then you’ll be paying more on your capital gains. If you live in a state like New Hampshire or Tennessee, then you actually can avoid the state taxation of short term capital gains altogether, as they are considered to be income tax.
This is a little bit more tricky, but basically, if you gained money on some trades and lost money on other trades, then you can leverage your losses against your taxes on your gains to reduce them. Every year, you can leverage up to $3,000 of losses against your taxes on gains.
Things to keep in mind when filing Cryptocurrency Taxes
Accuracy is crucial when filing your cryptocurrency taxes and can be extremely difficult when filing for cryptocurrency trades. Luckily, here at GetCryptoTax we’ve created an easy solution for your problems so that you can file easily! Get your report here.
Different Kinds of Gains
You may think that only the crypto you convert to US dollars can be taxed, but actually, there are many events that signify a taxable event. There are eight different ways to trigger a taxable event with your cryptocurrency: