How To Get Your Cryptocurrency Tax Done In Minutes With Cryptotrader.Tax

2/9/2023, 2:11:07 AM - Eddu Oz
How To Get Your Cryptocurrency Tax Done In Minutes With Cryptotrader.Tax

Taxes are the least items thought about by investors when getting into the cryptocurrency world. But, yes, your cryptocurrencies such as Bitcoin, Ethereum, Dogecoins, and others are all taxable.

Cryptocurrencies holdings are considered assets for tax purposes by the IRS. What this means is that all crypto holdings are taxable as other assets such as Stock, Gold, etc.

2021 was a big year for the cryptocurrency industry. The Market hit multiple all-time highs and lows throughout the year resulting in huge profits and losses for crypto holders.

According to a report by Grayscale Investment, about half of bitcoin investors only started investing during the last 12 months. These stats, therefore, reveals that a lot of investors came in last year and probably would just be paying their first tax.

Learning how cryptocurrencies are taxed becomes important especially since the IRS has continued its crackdown on crypto tax compliance. And one of the best platforms you can count on is the app.

In this post, we will talk about how you can get your cryptocurrency tax done in minutes with the app.

Disclosure: Please note that some of the links below are affiliate links and we earn a commission if you purchase through one of those links, at no cost to you. You will get a 10% discount coupon when you subscribe with the promo code CRYPTOTAX10.

Key Takeaways

• Cryptocurrencies like Bitcoin and Ethereum are classified as properties for tax purposes.

• Based on the tax bracket you fall under, a certain percentage of tax is expected to be paid on the capital gain. 

• Away from buying, selling, and trading,  an investor is liable for income tax on cryptocurrency earned through a job, mining, staking, airdrop, or interest from lending activities.

• Any taxable event that is incurred from your investment, is liable to require a tax report.

SEE ALSO: Can Rewards From Crypto Staking Be Taxed?

SEE ALSO: 5 Tax Advantages of Holding Crypto

SEE ALSO: How to Generate Income Reports For Tax Using Cryptotrader.Tax

What is Crypto Taxes?

How To Get Your Cryptocurrency Tax Done In Minutes With Cryptotrader.Tax

As stated above, majorly in the United States, cryptocurrencies are seen as taxable assets.

Just like other assets such as Gold, bond, stocks, and real estate, investors equally incur capital losses and capital gains when they buy, sell, trade, or dispose of their crypto assets.

And so, there are different tax brackets which investors fall under. Whichever bracket an investor falls under a certain percentage of tax will be required on capital gains. The tax rate to be paid fluctuates based on the personal tax bracket of the investor.

Income taxes are liable to be paid on the US Dollar value of crypto earnings, on cryptocurrency from staking, a job, mining, and interest on the lending.

Therefore cryptocurrency is not only incurred on selling, buying, and trading of your crypto assets.

Due to the ever-evolving world of cryptocurrency, every investor needs a platform where they can effectively manage their crypto assets, and is what we use here. You can sign up with this link here. You will get a 10% discount coupon when you subscribe with the promo code CRYPTOTAX10.

How Do You Calculate Your Crypto Taxes?

How To Get Your Cryptocurrency Tax Done In Minutes With Cryptotrader.Tax

Calculating your crypto capital gains or capital loss on trading, selling, and other disposals, is done with the formula below:

Fair Market Value – Cost Basis = Capital Gain/Loss

Fair market value

Fair market value refers to the general price your crypto-asset would be sold on the market. The sales price in the case of cryptocurrency would be in the terms of USD.

Cost basis

Cost basis on the other hand refers to the cost of acquiring an asset. That is, the amount of money it cost an investor in purchasing an asset, in this case, a crypto asset. The fees and all other cost incurred makes up the cost basis.

For example, if an investor bought 1 Bitcoin for $300, the cost basis is $300 per Bitcoin. If the investor decides to trade the coin at $500, the fair market value is now known as $500. By applying the formula, the capital gain or capital loss can be ascertained:

Fair Market Value($500) – Cost Basis ($300) = $200 Capital Gain

That’s a basic and simple way to calculate your crypto taxes.

But that the example above involves a one-time transaction. What happens when an investor deals with multiple transactions?

The example below shows you how to calculate your cryptocurrency tax with multiple transactions.

SEE ALSO: How Does Crypto Taxes Work (All You Need to Know)

SEE ALSO: How To Avoid Crypto Taxes (4 Legal Ways)

Calculating Capital Gains and Capital Loss on Multiple Transactions

As a crypto investor, the following are your transaction on a coin base:

1/1/22 – Buy 1 BTC for $29,000

2/2/22 – Buy 1 BTC for $36,000

3/3/22 – Buy 1 BTC for $50,000

4/4/21 – Trade 0.5 BTC for 14.5 ETH (0.5 BTC was worth $29,000 at this time)

The above transaction history incurs tax payment, you would need to either determine your capital gain or capital loss when 0.5/Bitcoin is traded for 8/Ethereum.

To ascertain your capital gain or loss, the formula given above needs to be applied here. Ghat is cost basis(0.5 BTC) – fair market value.

With 3 different BTC purchased at different prices before this trade, you must determine your cost basis in the 0.5 BTC to 8 ETH.

Ascertaining that is simple, but first, you need to determine which crypto you want to dispose of.

Specific costing methods are usually utilized by accountants to determine the order an investor should trade their various crypto assets. These methods include:

• First-In-First-Out (FIFO)

• Last-In-First-Out (LIFO)

The Accounting Method

These costing methods work exactly how they sound. For First-In-First-Out, the asset (or cryptocurrency) that you purchased first is the one that gets sold off first. So you are essentially disposing of your crypto in the same order that you first acquired them.

If we use First-In First Out for our example above, we “sell-off” that first bitcoin which was acquired at $29,000 on 1/1/21. The cost basis in this first bitcoin is $29,000, making the cost basis for 0.5 of this BTC $14,500 (0.5 * $29,000).

As denoted in the example, the fair market value at the time of 0.5 BTC at the time of trading was $29,000.

So by applying the formula, we can see that this transaction history triggers a $14,500 capital gain (29,000 – 14,500). This gain gets reported on your taxes and increases your taxable income. 

At this point, we both have to agree that calculating your crypto tax isn’t fun. The process is lengthy and tedious, that is why you need a platform that can help you automatically calculate your capital gains or a capital loss.

And one of the best platforms you should consider using is Cryptotrader. tax. You can sign up with the link here. A 10% discount coupon Is given to our audience when you subscribe with the promo code CRYPTOTAX10. to CoinLedger has officially announced a change of name to CoinLedger. The rebrand was initiated to provide better services to investors apart from just tax reporting.

With more innovation being initiated in the crypto industry, it becomes quite hard to keep track of your crypto assets. That is where CoinLedger comes in. It simply helps investors keep track of their crypto assets. 

Final Thoughts

The crypto industry has grown into what It is now. While the industry was anticipated to crash years back, it has stayed regardless and has continuously evolved.

There is more innovation being introduced and paying crypto taxes seems quite fair. And the tedious computation of ascertaining your crypto tax is similar to those of other assets.

It, therefore, becomes important to utilize the platform. As an investor, you need to get on the software to make your tax computation easy.

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