How to calculate your profit or loss and file your crypto taxes

Procedure for calculating

Before paying cryptocurrency taxes, you need to calculate losses and incomes correctly. You can do this on your own or with the help of a tax planner. An independent option is a priority, as it allows you to avoid additional financial costs. However, at the same time, the owner of virtual money needs to follow a specific sequence of calculations. Only in this case will it be possible to avoid errors and obtain accurate results.

Calculation sequence:

1. Determination of total earnings. In the beginning, calculate the number of payments without considering various costs. This will require data such as the number of coins sold and their sale price. Multiply one number by another, getting the total income.
2. Determination of purchase costs. This stage of work is as simple as possible. To determine the costs, it is enough to know the value of all coins during the period of their purchase. You sum up all the deals, getting the number of financial losses when acquiring virtual currency.
3. Definition of basis. This value shows the sum of all expenses, including various costs. The latter include fees (for transactions), commissions, and other similar payments. All listed financial losses are summed up and added to the cost of buying cryptocurrency. The final value is the basis.
4. Definition of profit and loss. To calculate the financial component from transactions with virtual money, it is necessary to subtract the basis from the total earnings. If the resulting value is positive (greater than zero), trading for the selected period will be a profit and, if damaged, a loss.

How to file taxes on cryptocurrency?

Recently, taxes have had to be paid on cryptocurrency as well. Any transactions with it require the deduction of part of the funds in favor of the state. These actions will contribute to the legalization of virtual currency earnings and save the cryptocurrency owner from problems with the tax authorities.

The Internal Revenue Service (IRS) classifies virtual currency as an essential asset category and levies the same tax on it as on various securities (such as stocks). Therefore, hiding any trading operations with cryptocurrency from this organization is forbidden. To deposit all the funds provided, you must go through a standard five-stage procedure consisting of 5 stages.

Steps for filing a cryptocurrency tax:

1. Profit calculation. Before paying taxes, you need to determine the income from cryptocurrency trading. It is found according to the previously described standard algorithm. The final amount will become a significant value and be used in the future.
2. Evaluation of short-term or long-term benefits. This step is overly critical. It allows you to determine the type of income received on which the tax rate depends. To obtain this information, you need to find the date of purchase of the currency. Next, compare this information with the current date. The benefit would be short-term if the purchaseasset were made less than one year ago. The profit would be called long-term if you received virtual currency more than 12 months ago.
3. Tax assessment. At this stage, you should analyze the current situation and assess the tax. In a short-term benefit situation, you will have to pay the same tax fees as if you receive any other income (from the sale of a car, work performed, etc.). Its amount depends on the level of federal income tax. Things are a little more complicated with long-term benefits. In such a situation, the owner of the virtual currency will have to pay a certain percentage of the amount of profit received. It is determined by unique tables and considers the amount of income, marital status, tand he status of an individual. The number of tax fees varies from 10% to 37%.
4. Preparation of a tax return. To file tax returns, you must complete the standard Form 1099-B. In most cases, trading exchanges automatically generate this document and provide it to the cryptocurrency owner. Further, this form is compared with IRS 8949. In some cases, at the final stage, other actions related to preparing a tax return are performed (for example, passing an additional check in case of discrepancies between the indicated data and the real ones).
5. Submission of the declaration and choice of tax payment option. After completing all the previous steps, choose the best method for submitting documents. Most often, tax authorities advise using special programs that prepare a declaration in electronic form. In the end, the cryptocurrency owner must choose the best way to pay the costs. Usually, a simple deduction from the account or an itemized return is used.

Trading, as well as other transactions with cryptocurrency, require the payment of taxes. To cope with this work, it is necessary to accurately calculate the profit and loss and correctly file documents to calculate the profit and loss, and correctly file documents accurately. Only in this case all ongoing actions will become legal, and the owner of virtual money will not have problems with controlling organizations.