The cryptocurrency world is growing at an incredible pace. With this growth, there are also new opportunities for tax evasion with crypto transactions. In this article, we will take a look at some of the best practices to help you avoid being caught by the IRS.
1: Use A Cryptocurrency Wallet
A cryptocurrency wallet is a digital account used to store, send, and receive bitcoins and other cryptocurrencies. A cryptocurrency wallet can be as simple as a single file on your computer, or it can be a web-based application. The most popular cryptocurrency wallets are Bitcoin Core, Electrum, and Mycelium.
2: Keep Track Of Your Transactions
Crypto tax is a term that refers to any taxation of cryptocurrency transactions. In most cases, crypto taxes are levied at the same rate as other taxable income. However, there are a few exceptions. For example, Bitcoin and other cryptocurrencies are treated as property for tax purposes in some jurisdictions. This means that gains on the sale of cryptocurrencies may be subject to capital gains taxes.
3: Don’t Spend More Than You Have
One of the most important things you can do when it comes to crypto tax is keep track of your spending. Make sure you know exactly how much money you have in each account, including cryptocurrency wallets and exchanges. If you find that you are spending more than you have, start tracking your expenses and figure out where the extra money is going.
4: Report Any Gains To The IRS
If you made money from cryptocurrencies during the year, you may have to report it to the IRS. Generally, any income you earn is taxable, no matter what form it takes. If you held the cryptocurrency as an investment, then your gains may be subject to capital gains taxes. If you used the cryptocurrency for transactions, then your gains may be subject to income taxes and possibly other fees.
5: Keep Records Of All Transactions
Cryptocurrencies may be taxable as property, capital gains, or income when sold. When used as a currency, cryptocurrencies are subject to value-added tax (VAT) and other trade duties. Cryptocurrency exchanges may be required to keep records of all transactions for tax reporting purposes.
6: Avoid Using Coinbase For Tax Documents
If you’re an individual taxpayer, you likely use Coinbase to buy and sell cryptocurrencies. However, if you’re filing your taxes using Coinbase, be careful: the company is not registered as a tax preparer. As a result, any cryptocurrency transactions you make through Coinbase may be considered taxable income. If this is your first time filing taxes using Coinbase, consult with a tax professional to ensure everything is handled properly.
7: Ways To Avoid Taxes On Crypto Transactions?
Cryptocurrencies are becoming more and more popular, but that doesn’t mean that everyone understands the tax implications of using them. If you’re an individual trading cryptocurrencies, you may be wondering how to avoid taxes on your transactions. Here are some other ways to avoid taxes on crypto transactions:
- Use a Crypto Wallet To Store Your Cryptocurrencies: One way to avoid paying taxes on your cryptocurrency transactions is to use a cryptocurrency wallet. A cryptocurrency wallet is an app or website where you can store your cryptocurrencies. This way, you don’t have to worry about keeping track of individual wallets or addresses.
- Claim Your Cryptocurrency Losses On Your Tax Return: If you make a loss trading cryptocurrencies, you can claim that loss on your tax return as long as you meet the requirements for claiming a loss. You must have invested money in cryptocurrencies and lost money when trading them. Additionally, the loss must be “real and material”—that is, it must represent a real economic loss for you.
- Use A Tax Planning Service: Another way to avoid paying taxes on your cryptocurrency transactions is to use a tax planning service. A tax planning service can help you figure out which taxes you may be subject to and help you prepare your tax return accordingly. You could try tax planning tool like Koinly and Taxbit.
- Use A Virtual Private Network (VPN): If you’re concerned about the security of your online transactions, you can use a virtual private network (VPN). A VPN encrypts all of your online traffic, making it difficult for anyone to spy on or track your activities. This will protect your privacy and keep your data safe.
- Claim Your Cryptocurrency Dividends And Royalties: If you receive cryptocurrency dividends or royalties, you may be able to claim them on your tax return as income. However, there are some conditions that must be met in order to claim these payments as income.
These are just a few of the best practices that can help you avoid tax evasion with your crypto transactions. If you have any other tips or tricks, please let us know in the comments below!