Planning your tax liability is a lot like playing chess – it’s surprisingly complicated, and the experts are way better at it than the rest of us. Between tax reform and increasing IRS scrutiny over cryptocurrency exchanges and investors, 2018 is shaping up to be a challenging tax year. If you joined the cryptocurrency revolution recently, now is the time to start planning your tax exposure. If you don’t, you may be facing a tax bill that you aren’t prepared to pay.
Fortunately, cryptocurrency tax experts are available to help you plan for the upcoming tax season. Happy Tax works with specially trained cryptocurrency accountants that have the skills and strategic ability to make sure you don’t lose your chess match with the IRS.
The IRS Cuts No Slack
Any time you buy, sell or exchange your cryptocurrencies, you must report this activity on your tax returns. Because you swear to the accuracy of your returns, it’s your responsibility to figure out your tax liability. When it comes to cryptocurrency, things get complicated quickly. For example, you have to determine the cost basis for all of your trades and the sale price in U.S. dollars. This can be pretty tricky, especially if you traded on an exchange that doesn’t use U.S. dollars. If you don’t have a solid method for figuring your cost basis, the IRS can assign your basis as $0. This makes your gains appear much higher than they actually were and may land you a staggering tax bill… There are several ways to determine your cost basis, and a qualified cryptocurrency accountant can advise you about which method will minimize your tax liability.
You Owe Taxes on Gains Even When They Are Negated By Market Volatility
If you made huge gains in your cryptocurrency portfolio in 2017 that have been wiped out in the down market this year, you might still be facing a big tax bill. The IRS allows some losses to be carried forward, but a loss cannot be applied retroactively. If you made profitable cryptocurrency trades in 2017, talk to an accountant to make sure you’re managing your tax liability properly.
Smart Crypto Investors Are Hiring Accountants to Limit Liability
Cryptocurrencies are subject to capital gains tax rules, which most of us have little to no experience dealing with. Capital gains apply whenever you buy or sell valuable property, like real estate or art, and your rates depend on how long you held the taxable asset before selling it. Your individual tax liability depends on several factors, so be sure to consult with a qualified cryptocurrency accountant before planning your trades. If you don’t have a regular CPA, Happy Tax can connect you with a trained tax professional who can help you prepare your taxes in a manner that keeps your tax bill as low as possible.