Bitcoin and other crypto assets are in a bull market and anyone who shopped in 2020 makes a serious profit in the tax year. Fortunately for them, however, the IRS has extended the deadline for filing taxes in the U.S. to give investors a little more time to reconcile their statements and organize reporting.
Here all crypto investors need to know how the tax deadline is extended and what to report.
Bitcoin Tax Breakdown You May Not Know
Investing in cryptocurrencies like Bitcoin, Ethereum and Altcoins is so easy that anyone can do it by downloading Coinbase or Cash app and doing a few swipe and click movements.
Despite the accessibility, they are assets that are serious business in terms of accounting and taxation. Any return on investment made by withdrawing on cryptocurrencies is immediately a taxable event that brings with it capital gains.
Related reading | Why US Crypto Investors May Have To Consider Changing Previous Tax Returns
Any trade between one type of coin and another, every time BTC is spent on goods, and even some wallet transfers can be considered a chargeable event. Airdrops, if and when sold, are a fully taxable capital gain.
The tax rate on capital gains also depends on several factors, such as: B. short or long term.
If you bought coins between the two lines, then you could owe capital gains taxes | Source: BTCUSD on TradingView.com
Simply put, the laws and processes surrounding cryptocurrencies are a really painful point in technology right now, and confusing at best. Members of Congress have blasted the IRS in the past, but the tax code has yet to be updated to accommodate emerging technology, although when filing documents you will now need to disclose whether you have any such “virtual” assets.
Failure to disclose or improper disclosure could result in fines or worse. Fortunately, the IRS has extended the deadline for filing taxes in the United States to May 17, 2021 from the normal April 15.
The IRS commissioner claims the move was taken to “help taxpayers cope with the unusual circumstances surrounding the pandemic while working on important tax administration tasks”.
This gives crypto investors another month to get their statements right.
What to do if you haven’t prepared your crypto taxes yet?
Procrastinators who sigh in relief and wonder where to start now can turn to tax preparation services like Bitcoin.tax or turn to a certified CPA for advice. Bitcoin.tax can be integrated into common Exchange APIs such as Coinbase and Binance and does some of the work and billing for you. However, you will need to manually track all air drops and other transactions using the software.
Related reading | If you are, you may not need to report crypto tax profits to the IRS
For those who bought Bitcoin but did nothing but hold, there is nothing to worry about right now. Simply buying and holding crypto is not a chargeable event in itself.
But if and when you sell your coins of any kind, be it in bitcoin or altcoins or back in cash, at the end of the tax year you still want to hold on to, you will need to run some reports on the above information if you ever need it .
We have done our best to provide guidance on who to report what, but there is no substitute for advice from a certified CPA who understands crypto tax law. Make sure you understand all reporting requirements as ultimately only you are responsible for your taxes.
Featured image from Deposit Photos, Charts from TradingView.com