Emily Clarke

How to Ensure I File My Taxes Correctly If I Invest in Crypto

Cryptocurrency has gone from a niche topic to mainstream awareness. Investing in crypto is widespread, and millions of people use it to diversify their financial portfolios.

Even still, crypto is relatively new. It's a decentralized medium that doesn't involve banks or traditional financial institutes. While many invest in crypto like they trade stocks, the rules are a little hazy. That's especially true around tax time.

So, how do you file taxes when investing in crypto? Read on to find out!

Do You Even Have to Pay Taxes?

Before we go any further, let's clear up one misconception. While cryptocurrency is decentralized, it's still an asset. If you invest wisely, you can even generate sizeable returns.

The IRS considers cryptocurrency a piece of property, so buying and selling it is a taxable event. Any money you make from your investments is also regarded as ordinary income. As a result, you must report your investments.

Despite this medium's relative anonymity, the IRS has ways to track crypto activity. Failing to pay your taxes on these investments could lead to charges of tax evasion or money laundering. For this reason, investing in crypto tax software is paramount.

Keep Records

It doesn't matter what coin you buy or how much of it you exchange. You must keep records of every transaction. The IRS is starting to crack down on crypto investments. Failing to report your activity could lead to severe financial and legal issues.

You must keep accurate records of every exchange. Those records will come in handy when it comes time to report them to the IRS.

Tax Preparation Made Easy

With how fast crypto moves, keeping track of every transaction isn't easy. However, modern crypto tax software does most of the heavy lifting for you. It's the easiest way to get peace of mind knowing that you're preparing your taxes correctly.

Sync the software with your crypto wallets to generate automatic reports and tax forms. It can save you headaches during tax season and ensure your investment activities remain above board.

Author Resource:-

Emily Clarke writes about portfolio management, finance tracking and Consumer SaaS services. You can find her thoughts at crypto tax calculator blog.