Don’t Get Hit By Crypto Tax Bills And File Everything Correctly From The Get-Go

The taxation of crypto assets remains a rather controversial topic in the industry. Not everyone agrees with the core concept, yet more and more people aim to comply with these guidelines. All enthusiasts must avoid getting hit unknowingly by crypto taxes, as the outcome will never be favourable.

The Confusing Nature Of Crypto Taxes

No one will deny it is not easy to determine one’s potential taxes when dealing with crypto assets. Many events that are taxable in one region might be not in the next. There’s also a  big difference between income tax and capital gains tax, yet it is crucial to file both correctly.  Even for the most advanced traders and enthusiasts, it is becoming challenging to make sense of it all.

Making matters even more interesting is the potential tax loopholes one can explore. When the markets crash – like they did a few weeks ago – there is a chance to turn these losses into tax-deductible events. It is impossible to do so with more traditional investment options, as the wash sale rule doesn’t apply to cryptocurrency at this time. Turning something negative into a positive for tax reasons is an option worth exploring. 

Selling crypto for a loss to reduce capital gains tax is a common strategy. The legality of this approach is questionable, but no rules prevent it from happening. It is equally possible to buy back the asset once sold at a lower price to profit on a future rebound.  Such a method is referred to as “tax-loss harvesting,” which has become far more common in recent years. Taking advantage if it is not punishable by definition, but caution remains advised.

Reddit Users Get Creative

Judging by the theory crafters on Reddit, the 2020-2021 crypto tax season will be exciting. No one wants to get hit with taxes unexpectedly or unknowingly, and preparation is essential. Even if one successfully avoids taxes one year, they will catch up over the next few years regardless. Paying huge fines isn’t advisable for anyone, yet that doesn’t mean one can’t get creative.

One user advises holding on to one’s assets as not selling crypto will require not paying taxes. While that is true, several countries will tax crypto to crypto transactions as well. In the US, things are a bit different in that regard, although trading between USD and crypto will often have beneficial outcomes.   

Other users indicate how they were unaware of how crypto taxes worked until it was too late. Not reporting income and capital gains tax is a considerable risk, although some may get away with it regardless. However, taking the risk may not always prove worthwhile, as the tax filing process has become more straightforward.

In the end, it is often far better to comply with the tax rules and never worry about it again. With some trades yielding profit and others resulting in losses, there are many options to explore. Using a correct tax filing tool such as CryptoTaxCalculator will often help users out tremendously. Everything is automated and labelled in the proper categories to create a viable tax report the IRS – or any other instance – should not have any issues with whatsoever. It is often better to avoid headaches later on by putting in some extra effort today.

Closing Thoughts

A proactive approach will often prove beneficial when it comes to crypto taxes. Rather than only relying on an accountant to take care of these things, tools like CryptoTaxCalculator and others make this process a breeze. Having all the information on hand for when the taxman comes to inquire will help avoid getting hit unknowingly by tax bills further down the line. Even during the COVID-19 pandemic, tax rules remain very strict, regardless of how consumers may feel about these matters.

More importantly, it is essential to find a forward-thinking tool. As the crypto industry grows and expands, new trends like DeFi, NFTs, and other options will become more popular. Every event is taxable, and supporting these trends will help users file their taxes correctly.

Note: InvestingCube is not a licensed tax service in any jurisdiction. This article does not take into account individual circumstances, and the content in this article should not not to be interpreted as financial or tax advice. It is NOT a replacement for your accountant.