How to Prepare for Bitcoin Tax Filing

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by Natallia Maksimenko · 4 min read
How to Prepare for Bitcoin Tax Filing
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The time of paying taxes is coming and crypto traders will not stand aside. Here is the summary of the main details that you need to know for the tax filing.

We are already into the fifth month of 2020. And the taxation has been delayed due to the COVID-19 pandemic. But sooner or later, the currently going lockdown will be lifted and everyone will be asked to pay their due taxes.

Amidst of all these events happening all around the world, new works have been started for the next financial year. With all the development going around, traders who have invested in the cryptocurrency are the most worried people.

After the best year for the Bitcoins in 2017, the U.S government understood the importance of the cryptocurrency trader’s earning and made a new law where even the crypto traders are liable to pay taxes for their crypto profits.

It may seem that these new developments in the tax payable categories are irrational, but you need to know that paying taxes is imminent, irrespective of how you are making profits.

So, what are we waiting for? Let’s hop on to the details needed for the tax filing.

Record Keeping

There are many brokers and traders that offer you cryptocurrency trades and charts on the Bitcoin Cycle. But none of them are obliged to give you tax reports. In that case, you are responsible to keep tabs on you every transaction.

When you are stuck with the scenario mentioned above, it is your own responsibility to keep tabs on every transaction you made and the profit you gain out of your deals. This way you will have all the necessary data for the tax filing.

Understanding Bitcoin Taxation

Earning in Bitcoin is simple, you just have to buy them at a low price and sell them when you are making a profit. The hassle starts when you have different portfolios of cryptocurrency and at the time tax filing, you have to prepare calculations for each portfolio. (as every cryptocurrency is taxed differently).

For instance, if you are getting paid in Bitcoins for goods and services, then the holding period of the Bitcoins doesn’t matter, it will be considered ordinary income. As per your income, you may be charged from 10% to 39%. In addition, you may also need to pay to the state government.

Accounts for the Bitcoin Tax Reduction

During the tax payments, cryptocurrencies are considered like all the other assets. That means the government is accepting its value as tangible currency. So if you are a person who has donated your Bitcoins by doing charitable work, then you are eligible for tax reduction.

However, you must be clear of one thing that you are eligible for tax reduction only if you have donated to the charities in cryptocurrencies. But if you are thinking of liquifying the cryptocurrency and then donating it to the charity then that will not reduce your taxed amount.

Provision for the Crypto Losses

We all know how losses can offset the profit you have made. A similar thing can be said for the cryptocurrency profit and losses. If you will go through the rules of the tax book you will find that while accruing a loss on the cryptocurrency trade, you are eligible to offset your profit up to $3000. That means you can reduce the profit amount by up to $3000. Hence, you will be liable to pay tax on the total profit -$3000.

Bitcoin Income

All the incomes that you have made with the help of the cryptocurrency trade should be reported in Schedule D. Schedule D has several categories of the types of income you can make with the help of cryptocurrency. As per your Form 1040 filing, you will be taxed accordingly.

Conclusion

The bottom line is that you need to have a clear understanding of crypto earnings and the type of crypto earning you are making out of the cryptocurrency trade. Once you are done with it, you will be able to file a tax efficiently.

Altcoin News, Bitcoin News, Cryptocurrency news, News
Natallia Maksimenko
Author: Natallia Maksimenko

Having deep expertise in intercultural communications, Natallia is fond of foreign languages and cultures. She strongly believes that people should continually develop to stay on track, that's why she permanently widens her knowledge in various spheres. Currently, Natallia is fully immersed in crypto, blockchain and financial techs.

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