Filing your taxes on cryptocurrency on SoFi might make the following easier to execute. There’s no legal way to avoid paying taxes on your cryptocurrencies. The good news is that you don’t have to pay taxes on what you own. Regarding capital gains, which are laws taxing income made from investments, you are only taxed on your earnings. Being a successful crypto investor calls for you to understand capital gains taxes and how to file them with your normal taxes each year. This overview goes through the steps and needs for you.
Bitcoin Recordkeeping-It’s Your Responsibility
The first thing to understand about bitcoin accounting is that you are the accountant. The safety of your coins, their location and administration are entirely up to you. This includes the work you must do to file your taxes. In order to properly file capital gains, you need to track your trading orders. 2021 ushers in a new era where individuals become their own banks, accounting for money received, lost and invested. Take a look at the following steps you need to take when tallying your trades for capital gains:
- Wins Versus Losses: Since capital gains only account for your wins, you need to take into account how much you lost. If your losses have exceeded your gains, then you must report this still.
- Prior Taxed Income: The money you used to buy bitcoin needs to be verified as already taxed. For example, the money you earned from work, which is taxed before you received it, is eligible as tax free since you paid fees already.
- Time Frames: Capital gains taxes are issued in terms of a year or under and a year or more. If you take your gains out of the market in under a year of owning them, your tax rate increases.
- Know the Public Records: The public records you organize now will create a history of honesty or dishonesty. Take your accounting seriously; organize your paperwork accordingly.
How to Disclose Gains From Cryptocurrency
Avoiding penalties in the future calls for you to file your gains properly. According to the experts at SoFi, you want take the following steps to make sure you abide by tax laws and protect your money:
- File Capital Gains Early: Like you do with your normal taxes, capital gains are filed yearly. You need to specifically file such money as capital gains.
- Deduct Your Losses: If you invested $1,000 but somehow lost $2,000, then you can deduct that $2,000 you lost. Deductions are what lower your taxable income.
- Go Beyond Crypto Assets: Be sure to file any investment assets you own that have earned an income for you.
- Remain Transparent: Remain honest as your guiding principle. Cryptocurrencies are here to stay, and this makes the government’s need to tax them permanently with us.
Filing capital gains isn’t complicated. Be sure to do your part, pay your fees and keep your account eligible for trading.