#1) Since 2019, the IRS has been sending out warnings to cryptocurrency traders. Due to the rapidly expanding crypto market, the IRS is constantly improving its systems to prevent tax evasion and fraud. The IRS receives reports on traders' transactions directly from cryptocurrency exchanges, and traders who do not voluntarily file their tax returns can be fined up to $250,000 and face imprisonment for up to five years.
#2) At this point, you may be wondering how your crypto taxes are calculated. Simply put, you subtract the price of the cryptocurrency at the time of purchase from the price of the cryptocurrency at the time of sale. However, this can quickly become confusing. For example, what happens if you sell only part of the cryptocurrency you bought this year? In this situation, you have several options to choose from.
#3) The results can vary depending on the option you choose. Consider this hypothetical example:
In 2021, you bought three ETH at three different prices. The first was $2000, the second was $2500, and the last was $2300. You then sell 1ETH for $2100. How do you calculate your gains or losses for the year? There are four different methods: FIFO, LIFO, HIFO and Special ID.
#4) When preparing your tax return, you should organize the details of your transactions in advance and document the receipts. We recommend using an exchange that provides your transaction history in a CSV file or supports API integration.
From there, it's easiest to fill out your forms quickly and accurately by using crypto tax calculation software. Go to Cointelli to learn more.
#2) At this point, you may be wondering how your crypto taxes are calculated. Simply put, you subtract the price of the cryptocurrency at the time of purchase from the price of the cryptocurrency at the time of sale. However, this can quickly become confusing. For example, what happens if you sell only part of the cryptocurrency you bought this year? In this situation, you have several options to choose from.
#3) The results can vary depending on the option you choose. Consider this hypothetical example:
In 2021, you bought three ETH at three different prices. The first was $2000, the second was $2500, and the last was $2300. You then sell 1ETH for $2100. How do you calculate your gains or losses for the year? There are four different methods: FIFO, LIFO, HIFO and Special ID.
#4) When preparing your tax return, you should organize the details of your transactions in advance and document the receipts. We recommend using an exchange that provides your transaction history in a CSV file or supports API integration.
From there, it's easiest to fill out your forms quickly and accurately by using crypto tax calculation software. Go to Cointelli to learn more.
