The internet is a breeding ground for rumors and popular myths. Around tax time, lots of tax-related misconceptions begin to circulate. This is particularly true in the cryptocurrency community since cryptocurrency taxes are a relatively new field that few people truly understand.
If you bought or sold cryptocurrency last year, you might want to consider working with a tax professional when it comes time to file your returns. Cryptocurrency transactions are taxed in a particular way, and if you’re not careful you can make any number of common mistakes. Errors and omissions on your tax return increase your risk of an audit, as well as all of the fines and penalties that come with it.
At CryptoTaxPrep.com by Happy Tax, we want to make sure everyone in the cryptocurrency community has the information and assistance they need this tax season. Just to quell some of the confusion and misinformation out there, here are three common crypto tax mistakes that every investor should avoid:
- Not reporting retail purchases made in cryptocurrency.
Whenever you use Bitcoin or other virtual currencies to purchase goods or services, you incur tax liability. Be sure to report these transactions on your tax return!
- Not reporting coin-for-coin swaps.
Although there are myths circulating online that exchanging one crypto coin for another is a tax-exempt transaction, this is not the case. All coin exchanges are taxable and must be reported to the IRS.
- Improperly calculating cost basis.
Cryptocurrencies are taxed under the capital gains rules, which require the establishment of a cost basis. Your cost basis depends on a number of factors, and the IRS allows for numerous accounting methods for cost basis.
When it comes to filing your crypto taxes, there are several pitfalls you need to avoid. Good, solid advice from a tax professional is often necessary in order to report all of your taxable activity properly. Though Happy Tax’s most recent division, CryptoTaxPrep.com, customers can choose from three different crypto tax assistance packages that vary in complexity and type of services provided Rather than trying to figure out how to properly report your crypto investments to the IRS, let the cryptocurrency tax experts at Happy Tax manage your tax returns this year. All Happy Tax customers work with licensed Certified Public Accountants, as well as our signature concierge service. The quality of service you’ll get at Happy Tax will certainly make you smile this tax season!