How to report last year’s traded crypto in your tax return
The IRS is an eagle-eyed organization of the United States government. The organization takes care of critical financial and tax-related matters.
The organization has created and issued a set of guidelines. The IRS did so for three important reasons.
- To make it easier for crypto enthusiasts to report traded crypto from previous years on their tax returns.
- To assist crypto traders, investors, and HODLERS with paying their crypto earnings taxes.
- To make it simple for users to report their cryptocurrency losses on their taxes and save thousands of dollars.
Are you among the taxpayers who use crypto in the United States?
The IRS treats all types of cryptocurrencies like properties.
This means that cryptocurrency transactions are now taxable.
The organization has clearly defined a set of events to bring your income from cryptocurrencies to taxable brackets.
The organization has also clarified a set of events that make your income from this digital decentralized technology-based financial innovation non-taxable.
We have already talked enough about these two points in our previous posts.
The IRS is trying to get crypto enthusiasts to make tax payments in the best possible way.
It is time you learn the steps to report your previous year’s traded crypto on your tax returns.
What are the steps?
We suggest you learn some important things before we get to the point. For example,
- Rules related to tax for cryptocurrency in 2021and 2022.
- Steps to determine whether you owe crypto taxes or not.
- The way the IRS taxes your income from cryptocurrencies
- Do you pay CGT (Capital Gains Tax) on income from cryptocurrencies?
- What if you fail to disclose your crypto activities on tax returns?
Let us answer these questions for you below and one-by-one:
- Rules for cryptocurrency tax for 2021 and 2022:
The table presented below is to tell you about crypto rates on long-term capital gains for the financial year 2021:
| Serial No. | Tax Rate | Single | Married Filing Jointly | Head of Household |
| 1 | 0% | $0 to $40,400 | $0 to $80,800 | $0 to 54,100 |
| 2 | 15% | $40,401 to $445,850 | $80,801 to $501,600 | $54,101 to 473,750 |
| 3 | 20% | >$445,850 | >501,600 | >$473,750 |
The second table presented below tells you about crypto tax rates on long-term capital gains for the financial year 2022:
| Serial No. | Tax Rate | Single | Married Filing Jointly | Head of Household |
| 1 | 10% | $0 to $9,950 | $0 to $19,900 | $0 to $14,200 |
| 2 | 12% | $9,951 to $40,525 | $19,901to $81,050 | $14,201to $54,200 |
| 3 | 22% | $40,526 to $86,375 | $81,051to $172,750 | $54,201 to $86,350 |
| 4 | 24% | $86,376 to $164,925 | $172,751to $329,850 | $86,351 to -$164,900 |
| 5 | 32% | $164,926 to $209,425 | $329,851to $418,850 | $164,901 to$209,400 |
| 6 | 35% | $209,426 to $523,600 | $418,851-$628,300 | $209,401 to $523,600 |
| 7 | 37% | >$523,600 | >$628,300 | >$523,600 |
- Steps to determining whether or not you owe crypto taxes.
Selling, trading, and exchanging bring your crypto to table brackets.
Even activities like transferring, gifting, and donating crypto beyond a certain limit make you owe crypto taxes.
If you charge cryptocurrency to your customers for any service or goods, be prepared to pay tax.
Trading of different types of cryptocurrency is also taxable.
- The way IRS taxes your income from cryptocurrency.
The IRS taxes your income from cryptocurrencies like ordinary income. Your crypto income is taxed at its fair market value on the date you receive it.
- Take a look at what falls under the category of crypto income.
- All types of crypto payments. This includes your salary as well.
- Rewards related to cryptocurrency mining and staking.
- Earning interest by lending crypto.
The list does not end here.
Do you pay CGT (Capital Gains Tax) on income from cryptocurrencies?
What is your answer to this question? Is it in yes? Is it not?
Let us tell you the truth about investing, trading, exchanging, or HODLING cryptocurrency.
The moment you invest in cryptocurrency and trade, exchange, or HODL, the exchanges of your choosing and government authorities like IRA get access to all types of data relevant to the transaction you carry out.
All in all, decentralization is no longer decentralization in a way.
The government of the United States already knows your answer to the question.
But the government still asks you this question to help you minimize your financial loss and safeguard your financial interests in the best possible way.
Crypto enthusiasts paying CGT (Capital Gains Tax) on income tax from cryptocurrencies can minimize the taxes they owe.
You can achieve this incredible feat using one of the following strategies:
- You can plan to open a crypto IRA.
- Give a shot to tax-loss harvesting.
- You should HODL the best crypto investments for a long time.
- What if you fail to report your crypto activities on tax returns?
The IRS will crack down on you. You should be ready to face penalties that you cannot afford.
But what if you forgot to report your crypto gains on your tax return?
You can correct this mistake through a correction to your tax return from the year you forgot to report your crypto activities.
We suggest you do this within three years from the date you filed your return to file a corrected return. Follow the steps given below:
- Determine the amount you owe.
- Amend your tax return on IRS form 1040X.
- Finally, email or e-file the corrected return.
The list does not end here.
We suggest you learn some more important things before proceeding with reporting the previous year’s traded cryptocurrencies in your returns. For example;
- Taxes related to cryptocurrency.
- Cryptocurrency tax rates, tax forms, and tax laws.
- Taxes on cryptocurrency losses and gains.
- Tax loss carry-forward
- Long and short-term capital gains.
- Ways for investors to offset capital gains with capital losses.
- The way crypto tax is applied.
- Requirements for foreign reporting.
The best answer to a million-dollar question.
What is the process to report the crypto you traded last year?
First, you should learn the process of reporting cryptocurrency on your tax returns.
- Prepare a list of tax exchanges and transactions, including 1099 forms you receive from exchanges.
- You should value calculating capital gains and losses.
- You should fill out the IRS form 8949 for every event taxable as property.
- You should transfer the totals from your 8849 form to form 1040 Schedule D.
- Specify all details about the remaining crypto income on form 1040.
Answer all questions related to cryptocurrency in the 1040 US Individual Income Tax Return form.
Did you receive, sell, exchange, trade, or dispose of any cryptocurrency in 2021? Answer this question with “Yes” or “No.”
If you bought crypto using USD and did not sell, trade, or exchange it for a year or more, your answer should be “No.”
You should go through the FAQ page on digital currencies of the IRS.
Do not answer “Yes” to the form 1040 question if all your transactions were related to only buying cryptocurrencies using the real currency in 2021.
Since the IRS treats BTC as property, you do not need to report this on your tax return.
All in all, the only thing the IRS wants to know is the list of your taxable and non-taxable crypto transactions. Check Yes, if your transactions were taxable. Otherwise, check No.
Do you still need help with it?
Do you want someone to help you report last year’s traded crypto in your tax return?
Let us know immediately.
From the best tools to experienced professionals, we have everything to exceed your requirements and expectations. We are only a phone call or message away!
