When it comes to filing your cryptocurrency taxes, you’ll need to fill out the appropriate crypto tax forms to avoid potential costly penalties. If you’re new to cryptocurrency or you aren’t familiar with the regulations surrounding taxes, rest assured that our team is happy to help!
One of the most important forms to keep in mind is Form 8949. Here’s everything you need to know for accurate filings ahead of the 2022 tax season.
What is Form 8949?
Since 2014, the IRS has required all cryptocurrency transactions including Bitcoin and Ethereum to be treated as taxable property. Form 8949 is used to keep track of your cryptocurrency capital gains and losses and each sale is reported on this form. Form 8949 is broken into two distinct parts: short-term gains and long-term gains. In the case that you had non-crypto investments, be sure they are filled out on separate Forms 8949.
Need more information on how to fill out the form? Here’s what you should know.
How to Fill Out Form 8949
While we always recommend using one of our cryptocurrency tax experts, you can also fill out Form 8949 on your own if you follow the steps carefully.
To begin, fill out the initial information at the top of the form. It will show a short-term trades section that asks you to select box A, B, or C:
- (a) Short-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS
- (b) Short-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS
- (c) Short-term transactions not reported to you on Form 1099-B
In most cases, users who select C—crypto exchanges usually do not provide Form 1099-Bs, but in the case that they do, check either A or B.
Then, you’ll need to organize calculations by row and notate the transaction details such as:
- Property description
- Date acquired
- Date sold or disposed of
- Cost basis
- Adjustment, if any, to gain or loss
- Gains or losses
The next step is to aggregate the boxes located at the bottom of the form: total proceeds, total cost or other basis, total adjustment, and total gain (or loss). It’s important to note that if you traded large volumes of cryptocurrency, it’s normal to see your cost basis and proceeds total a larger sum than you anticipated as it reflects all of your cost basis/proceeds.
Repeat the steps to fill out the long-term trade information in the second part of the form.
Can Crypto Tax Software Help?
Absolutely! Many crypto tax software options on the market can automatically fill out this form on your behalf. We also highly recommend turning to one of our professionals at Founder’s CPA for guidance on cryptocurrency taxes.
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The last thing you want is to overpay on your cryptocurrency taxes. To prevent this from happening and to ensure your filings are filled out accurately, make sure to take advantage of our complimentary consultations! Whether you’re an individual who needs help or you’re a small business looking for guidance, you’ll find what you need at Founder’s CPA.