How to Save Money and Avoid IRS Trouble with Crypto Taxes

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How to Avoid Tax Mistakes and Save

Cryptocurrency is a new and exciting way to invest, but it also comes with some tax challenges. If you don't report your crypto correctly, you could face penalties and audits from the IRS. In this article, we'll cover the top 5 crypto tax mistakes to avoid and how you can use CoinTracking to make your crypto tax filing easier and more accurate.

1. Not reporting crypto taxes

One of the biggest crypto tax mistakes is not reporting your crypto activity at all. The IRS treats cryptocurrency as property, which means you have to report every , , or using crypto as a taxable event. Even if you only traded crypto for crypto, or used crypto to buy goods or services, you still have to report it and pay taxes on any gains or losses.

Some people think that crypto is anonymous and untraceable, but that's not true. The IRS has developed sophisticated tools to track crypto transactions and identify taxpayers who fail to report them. If you don't report your crypto activity, you could face penalties, interest , and even criminal prosecution.

To avoid this , you should keep track of all your crypto transactions and report them on Form 8949 and Schedule D of your tax return. You can use CoinTracking to import your from various and , calculate your gains and losses, and generate the required tax forms.

2. Not recording your crypto history

Another common crypto tax mistake is not keeping accurate records of your crypto transactions. You need to know your cost basis, which is the amount you paid for your crypto plus any fees or expenses. Your cost basis determines your capital gain or when you sell or exchange your crypto.

Some people make the mistake of guessing their cost basis or using an average for all transactions, which can result in inaccurate reporting and potential penalties. It's important to keep detailed records of your crypto transactions and calculate your cost basis correctly.

You can use CoinTracking to help you record your history and calculate your cost basis. CoinTracking can automatically sync with your exchanges and wallets, or you can manually enter your transactions. CoinTracking also supports various methods of calculating cost basis, such as FIFO, LIFO, HIFO, or ACB.

3. Ignoring or misreporting airdrops

Airdrops are distributed to investors, usually as a promotion or reward. Airdrops can be an exciting perk of in cryptocurrency, but they can also create tax liabilities and challenges for investors.

Here are some issues to watch out for:

  • Your taxable income is the fair value of the airdropped coins at the time of receipt. This means that even if the coins' value plummets later on, you may still face a high tax liability.
  • Some airdrops are either worthless or , but tax software will still pick them up and inflate your taxable income. Correcting this problem may require manual review of thousands of airdrops.
  • You may have received airdrops without even realizing it, so it's important to check. Failure to report airdrops can result in penalties and interest charges from the IRS.

To avoid these problems, you should monitor your airdrops carefully and report them accurately on your tax return. You can use CoinTracking to help you identify and value your airdrops. CoinTracking can also filter out spam airdrops and exclude them from your taxable income.

4. Not claiming capital losses

Cryptocurrency is a volatile market, and sometimes you may end up selling or exchanging your crypto for less than what you paid for it. This results in a capital loss, which can reduce your taxable income and lower your tax bill.

Some people make the mistake of not claiming their capital losses or not using them effectively. You can deduct up to $3,000 of capital losses per year from your ordinary income, and carry over any excess losses to years. You can also use capital losses to offset capital gains from other sources, such as or .

5. Not filing because you can't pay

One of the worst crypto tax mistakes you can make is not filing your tax return because you can't afford to pay your tax bill. The IRS imposes penalties for both failure to file and failure to pay, and the failure to file penalty is usually much higher. Even if you can't pay your taxes in full, you should still file your return and pay as much as you can.

If you can't pay your taxes in full, you have some options to avoid or reduce penalties and interest. You can request an installment agreement with the IRS, which allows you to pay your taxes over time in monthly installments. You can also request an offer in compromise, which allows you to settle your tax debt for less than the full amount. However, these options have requirements and may not be available for everyone.

To avoid this mistake, you should plan ahead and set aside money for your crypto taxes throughout the year. You can use CoinTracking to estimate your tax liability and track your . CoinTracking can also help you file your tax return and apply for an installment agreement or an offer in compromise if needed.

How CoinTracking Can Help You Avoid Crypto Tax Mistakes

CoinTracking is a powerful and easy-to-use tool that can help you avoid crypto tax mistakes and save money on your taxes. CoinTracking can help you:

  • Import your data from over 70 exchanges and wallets
  • Calculate your gains and losses using various methods
  • Identify and value your airdrops, forks, splits, and other income
  • your capital losses and carry them over to future years
  • Generate tax forms and reports for the IRS and other authorities
  • Estimate your tax liability and track your payments
  • File your tax return and apply for payment plans or settlements

CoinTracking is trusted by over 1 million worldwide and has been featured in Forbes, Bloomberg, CoinDesk, and other media outlets. Whether you're a beginner or a professional trader, CoinTracking can help you simplify your crypto taxes and optimize your results.

The Bottom Line

Crypto taxes can be complicated and confusing, but they don't have to be. By avoiding the common crypto tax mistakes we've covered in this article, you can save time, save money, and avoid IRS problems. And by using CoinTracking, you can make your crypto tax filing easier and more accurate than ever.

If you need help with your crypto taxes, don't hesitate to contact at Gordon Law Group. They have the experience and expertise to help you with all aspects of cryptocurrency taxation, from planning and compliance to audits and litigation. Call them today at (847) 580-1279!

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