How to Avoid the Five Most Common Crypto Tax Mistakes I Cointelli – Sponsored Bitcoin News

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The U.S. 2022 tax season is upon us and cryptocurrency traders need all the help they can get. Here are five common misconceptions about cryptocurrencies that you should pay attention to, courtesy of a cryptocurrency provider. Cointelli.

“You don’t have to pay crypto taxes”

One very common mistake people make is thinking that they don’t have to pay a tax on crypto transactions. However, crypto transactions is taxable, and the IRS is very capable of following you and your assets if you do not comply. The IRS calls cryptocurrency virtual currency, and any exchange transactions, mining or staking proceeds, crypto received from hard forks and air jets, and even DeFi transactions – essentially the majority of profits and losses resulting from cryptocurrency activity – are subject to tax. . .

According to the 2014 IRS guidelines, cryptocurrency is treated as property for tax purposes. This means that any capital gains or losses generated by the sale of your assets are taxable, while assets that you simply hold or own are not taxable until you sell them. The IRS has not yet provided clear guidelines for areas that include staking, NFTs, and DeFi transactions.

Do, what happens if you do not report crypto transactions to the IRS? The crypto market has grown rapidly in recent years, and the IRS’s enforcement efforts have grown with it. If you do not report your cryptic transactions in your tax returns, you could be in big trouble. As you may have seen, the IRS asked the following question on the front page of Form 1040:

“It simply came to our notice then [the tax year]have you received, sold, sent, exchanged or otherwise acquired any financial interest in any virtual currency? “

Trying to avoid paying taxes on your crypto is no longer a viable option. Fortunately Cointelli is here to save you from stress and frustration this tax season and help you stay compliant with the latest tax laws.

“Reporting my crypto transactions will only lead to me paying more taxes”

Another common misconception is that reporting your crypto transactions can only lead to you paying more taxes. However, this is not necessarily true. In fact, there is actually a way to reduce your taxes using a strategy called tax-exempt harvest. But how exactly does this work?

Basically, harvesting is an investment strategy where you sell assets at a loss to offset your other capital gains. For example, if your crypto was tanked, your natural instinct might be to hold it until it regains its value. But if you decide to sell your crypto and accept the loss, you could “harvest” it instead. Because the loss you take can be used to offset your capital gains from other investments, you could end up reducing or even eliminating your capital gains tax.

There are four things to consider before reaping losses:

1. Be careful of the wash sale rule: A proposal to apply the lava sale rule to cryptocurrency may be implemented in 2022. If this rule is implemented, you will not be able to deduct a loss from the sale of crypto if you buy the same crypto 30 days before or after the sale.
2. It is advisable to reap your losses throughout the year.
3. Remember that offsetting your short-term earnings comes first.
4. Don’t forget about exchange fees.

To claim your losses for the tax year, you must report your crypto losses to the IRS and finish your tax harvest before the end of the year. Crypto capital losses are reported Form 8949. After entering the details, you need to calculate the total amount of income, choose the best cost base for you and enter your net capital gains and losses at the bottom of Form 8949. For more, check. this guide.

As can be seen from the above, calculating your capital gains and losses manually can be complicated. This is why many crypto traders already use crypto tax programs like Cointelli to quickly and accurately calculate their net crypto gains and losses from short-term and long-term crypto transactions.

“You only have to pay taxes when you convert crypto into a trusted currency”

A third common misconception is that you only need to pay taxes when you convert a cryptocurrency into a trusted currency. However, this is the same is not the case. Many different scenarios and situations are taxable. For example, have you mined any cryptocurrencies? You may be surprised to learn that merchants have to pay taxes on crypto mining. The IRS classifies earning income from generating blocks in a blockchain as earned income, which means that you owe income tax on any cryptocurrency that you may have mined.

Another scenario to consider is if you received a “free” flight crypto. This is also considered income, which means you owe taxes on it! The 2019 IRS Cryptocurrency Tax Guidelines state that all cryptocurrencies received from air jets are subject to income tax. Regardless of whether you intended to receive it or not, a “free” cryptocurrency that goes into your wallet or exchange account is considered ordinary income.

To determine whether a cryptocurrency event is taxable, you should first understand that the IRS classifies cryptocurrency as property, not currency. Therefore, many forms of crypto-related income are classified as capital gains and are subject to capital gains or income tax.

It is also important to understand the tax implications of a crypto hard fork. But what exactly is a hard fork? Once a cryptocurrency has been out for a while, it is very common for developers to issue updates or update its programming. When a crypto currency program or “protocol” receives a significant update or code modification, we call it a “hard fork”.

If your cryptocurrency went through a hard fork but existed no a new cryptocurrency issued to you, whether by airmail or any other distribution, you make no has taxable income. However, if your cryptocurrency has gone through a hard fork upgrade and the developers have issued a new cryptocurrency to you, this is taxable transaction.

“Crypto profits are always taxed at the same rate”

A fourth misconception that many people have is that crypto profits are always taxed at the same rate. Make no mistake; I point it out on which crypto profits are taxed varies, which can be very complicated to calculate how much you owe. Three factors influence the rate at which cryptocurrencies are taxed.

The first is the holding period, or how long a person held their crypto before selling it. Cryptographic gains are classified into short-term and long-term gains and are taxed according to their holding period. Short-term capital gains can be taxed at up to 37%, while long-term capital gains can be taxed at up to 20%.

The second is your income group. High-income taxpayers have to pay a 3.8% net investment income tax (NIIT) on investments like crypto, which will affect their tax rate.

The third factor is your location. You may have to pay state and / or local taxes depending on where you live. If you are preparing to sell, make sure you understand your local tax laws before calculating your profits and losses.

Cointelli understands that all this can be confusing, and that not everyone is a tax expert. That’s why it takes care of the hardest parts of preparing crypto taxes for you.

“Making my cryptocurrencies too complicated”

Filling out your crypto tax report doesn’t have to be difficult! Cointelli summarizes it in the following three steps:

1. Find out your crypto gains and losses
2. Complete Form 8948 and Schedule D
3. Add your other crypto income to the tax return

Cointelli is software created by a team of CPAs who specialize in cryptocurrency and want to help you report your cryptocurrencies accurately. The amount you pay in tax can vary widely depending on how you calculate your capital gains, which makes it critical that you use reliable crypto tax software. Having wide compatibility with exchanges, wallets and blockchains and functions like error auto repair, Cointelli is a crypto tax software that you can trust. In addition, it also makes the whole process quick and easy!

Simply import your crypto transactions from your exchanges into the software, and Cointelli will automatically organize your purchase costs, purchase dates, sales costs, sales dates, holding periods, transaction fees, and more.

Are you struggling with cryptocurrencies this tax season? Click here to let Cointelli handle everything for you so you can sit back and relax!

• This article is intended to provide general financial information designed to educate a wide segment of the public; it does not provide personalized tax, investment, legal or other business and professional advice. Before taking any action, you should always consult your own professional tax advisor for advice on taxes, your investments, the law or any other business and professional matters that affect you or your business.
• Cointelli is currently only available in the United States. The above financial and tax information belongs to the US market.

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