You might be tired of hearing about cryptocurrency taxes and finding the right crypto taxes form to stay organized, but in reality, the more prepared you are for the next tax season, the better! By now, it’s clear that cryptocurrency is subject to both ordinary income and capital gains tax. The more cryptocurrency-related transactions that you make, the more important it is that you file accurately every year.
Our experts at Founder’s CPA have put together different tips to help you start preparing now. This will make the process of the next tax season that much easier.
1. Keep a Crypto Transaction & Trading Journal
Getting in the habit of writing down your trades and transactions will only benefit you in the long run. Having a physical record of each of your trades and transactions makes it easier to keep up with your records when you’re reporting during tax season. For example, when it comes to trades, you can write down the date of the trade, the platform that you used (Coinbase, Binance, etc.), the assets that you traded, the non-custodial wallet that you used, any trading or blockchain fees, the amount that you traded, and more.
2. Use a Block Explorer
Some people might not like the idea of keeping a physical copy of a trading journal. In this case, you can still find a record of your transactions on a block explorer. As soon as you upload your trading information to crypto tax software, you’ll get a transaction ID. This ID can be inputted into a block explorer to find public information about the trade. For example, after making a transaction on the Ethereum network, you can take the transaction ID from your software and paste it into the Etherscan Blockchain Explorer.
3. Cross-Check Transactions
In the case that most of your crypto trading occurs on a centralized crypto exchange such as Gemini, you’ll be able to use this to your advantage. Navigate to your utilized cryptocurrency exchange and download records of each of your trades. You’ll be able to cross-check the records you find on these sites with any records that are held on your utilized crypto tax software.
4. Research Various Cost Basis Methods
If you are filling out your crypto taxes form for the first time, you’ll need to determine which cost basis method you’ll be using to calculate your crypto gains or losses. Examples include FIFO (first in, first out), LIFO (last in, first out), or HIFO (highest in, first out). Feel free to watch our video here where we go more into more depth about cost basis methods.
One of the most important things to keep in mind is that it is highly recommended to use the same method each year, so the one that you choose initially should be used in subsequent years. If you aren’t sure which method is the most advantageous to the types of trades that you’re making, it’s important to seek guidance from an expert on how crypto taxes work.
5. Seek Expert Help for Reporting Activity Using the Right Crypto Taxes Form
Speaking of expert help, our last tip for preparing for crypto tax preparation includes working with a professional. While it’s tempting to navigate your cryptocurrency taxes on your own, the process can be stressful and requires in-depth knowledge. Our team at Founder’s CPA can guide you when filling out your crypto taxes form and ensure that everything is submitted properly. Take advantage of our free consultations and contact us to get started!
