Navigating Tax Time with Cryptocurrency: 5 Mistakes to Avoid
Title: “Crypto Tax Filing Mistakes You Can’t Afford to Make: Expert Advice”
In the world of digital cryptocurrency, tax time can be a tricky and confusing period for many individuals. Despite the misconception that digital transactions can go unnoticed by the IRS, experts warn that failing to report crypto earnings and transactions can have serious consequences.
According to certified public accountant Shehan Chandrasekera, the biggest mistake crypto traders make is assuming that their transactions are invisible to regulators. In reality, the IRS has various ways of tracking crypto activity, and all digital asset-related income must be reported on federal income tax returns.
One common mistake is not reporting crypto transactions at all. Whether you received, sold, sent, exchanged, or acquired interest in cryptocurrency, it must be reported on your taxes. Failing to do so can result in fines, penalties, or even jail time.
Another crucial error is not treating crypto as property. In the U.S., cryptocurrencies are taxed as property, meaning all sales are subject to capital gains and losses regulations. Additionally, receiving payment in crypto is considered ordinary income and is subject to income tax.
Furthermore, failing to report crypto exchanged for goods and services can also lead to tax issues. Making a purchase with crypto is considered a sale, and the cost of the purchase must be accounted for in your tax filings.
Additionally, taxpayers must report income from airdrops, forks, and splits of cryptocurrencies. Keeping accurate records of all transactions throughout the year is essential for calculating tax liabilities and filing accurately.
As regulations surrounding crypto tax filing continue to evolve, it’s crucial for individuals to understand the implications of their crypto activities. By avoiding these common mistakes and staying informed, taxpayers can navigate the complexities of crypto taxation with confidence.
