The Internal Revenue Service (“IRS”) established an official policy regarding cryptocurrency taxes back in 2014. However, most cryptocurrency investors are just now figuring out their tax obligations. Fortunately, there are several tools available to digital currency investors looking to prepare for the upcoming tax season.
It’s often said that prior planning prevents poor performance. This is particularly true when it comes to preparing your taxes. There a number of helpful tools that can help you keep the records you need to file your federal income tax returns. A qualified accountant, like the trained cryptocurrency accountants at Happy Tax, can help you file your returns properly. However, until it’s time to file, these tools can help you keep your financial records in order.
- Electronic Record-keeping Apps
Most of us are familiar with programs like Excel and Quickbooks, and some of us can’t imagine a tax season without these helpful tools. However, technology has come a long way from the days when your computer took up the majority of the space on your desk. Nowadays, there are several smartphone apps that can help you track your investments, and many of them are designed specifically for cryptocurrency investors.
- Investment Tracking on Your Cryptocurrency Exchange
If you invest with a traditional financial institution, they typically send out tax documentation at the end of the year. The IRS does not impose these same requirements on cryptocurrency exchanges, so as of yet no exchange takes on these same types of reporting obligations. Coinbase – one of the most popular cryptocurrency exchanges – does provide users with a Cost Basis for Taxes report that you can use to help you keep your records straight. This is a helpful tool for Coinbase users, especially those who don’t have experience with capital gains tax rules.
- Online Tax Calculators
Tax calculators can help you understand your potential tax liability so that you aren’t caught totally by surprise when the IRS bill comes. Enterprising tech entrepreneurs have even developed tax calculators specifically programmed to estimate tax liability for Bitcoin investors. However, before relying too heavily on these software applications, you should be aware that these programs only provide estimates based on the information you provide. Consult with a licensed Certified Public Accountant before filing your tax returns to make sure you’re filing everything properly.
Good record-keeping is critical to avoiding excessive tax liability, and the CPAs at Happy Tax are specially trained in how cryptocurrencies must be reported on your tax return. These skilled professionals can help you understand what you’ll need to document your capital gains and losses on your virtual currency investments. Throughout the year, however, it’s your responsibility to collect and store the information your accountant will need come tax time. The tools described here can help you stay organized, making tax season much less stressful.