There’s no denying that taxes are an annual burden that many Americans have difficulty navigating. The same can be said for cryptocurrency taxes, especially since cryptocurrency is already a complicated subject with many nuances. While it’s incredibly frustrating to think of your hard-earned crypto gains ending up in the pockets of the IRS, there’s no way to avoid this issue.
With that being said, using a crypto tax accountant is an easy way to help investors like you minimize your tax burden and ensure accuracy. Here’s how working with one of our crypto tax accountants can reduce your taxes.
How Do Cryptocurrency Taxes Work?
The IRS considers cryptocurrency to be a form of property, meaning it’s subject to both capital gains and income tax. In the case that you sell, trade, or buy goods with your cryptocurrency, you’ll need to pay capital gains accordingly. If you receive income in the form of cryptocurrency, you’ll also be subject to income taxes on those earnings.
The Benefits of Using a Crypto Accountant
Selecting the Proper Account From Which to Trade
Using the right accountant is a simple way to ensure you receive the right tax benefits. For example, selling your capital assets in an IRA means you won’t have to pay a capital gains tax until your earnings are withdrawn if the account is set up and maintained properly.
While most IRA custodians don’t provide the opportunity to invest in crypto, you can instead set up a self-directed IRA or 401k to store your cryptocurrency investments as well as precious metal or real estate investments. Individuals who meet certain income level requirements are allowed to contribute $6,000 annually to all IRAs, including self-directed IRAs.
Tax Minimization Strategies
Crypto tax accountants know all of the tax minimization strategies that can cut down on your cryptocurrency taxes. For example, they will closely track and compile detailed records that allow for specific tax ID lots such as highest in, first out.
Tax loss harvesting is another method of decreasing your tax bill. It is the practice of intentionally selling your cryptocurrency at a loss to help you claim your tax savings. Cryptocurrency is particularly advantageous in tax loss harvesting as it doesn’t follow the ‘wash sale rule.’ This means investors can sell cryptocurrencies, claim the capital loss, and buy back their tokens 30 days before or after the sale.
Ensure Transactions are Taxed Properly
Filling out the tax forms properly is half the battle when it comes to cryptocurrency taxes. Forms include 8949, 1040 Schedule D, and 1099-MISC, all of which your accountant can fill out on your behalf. Not only will a professional fill out the forms for you, but he or she will also ensure each transaction is taxed at the proper rate.
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