Have you ever wondered how to report cryptocurrency transactions on your tax return?
At Cointelli, we have answers for you.
We’ll walk you through a step-by-step method to prepare and report crypto on your tax return accurately and safely. Come aboard with us and let’s get the crypto tax report done here!
Step 1: Figure out your crypto gains and losses
First, we need to figure out what you gained and lost this year. How do we do that?
Here’s the basic formula to figure out your gains and losses.
Sales price - Cost basis = Crypto gain/loss
There are also several cost basis methods that could change your gains and losses based on the method utilized. To learn more about this, click here.
Once you’ve figured out your crypto gains and losses, let’s move onto the actual tax forms.
Step 2: Get familiar with Form 8949
The first form we should remember is Form 8949, or otherwise the image below.
On the first row of the table above, you will see familiar terms like sales price and cost basis. These are where all of those numbers, that we talked about before, are filled in.
Step 3: Complete Form 8948 and Sch. D
Let’s break this form down and start filling it in.
1. Group the short-term and long-term crypto capital gains together.
The main reason for doing this is because short-term and long-term capital gain tax rates are different and we want to report them accurately to the Internal Revenue Service (IRS).
Then what decides short-term or long-term capital gains?
We also have a helpful article about this. Please click here to learn more.
2. Choose the correct boxes from (A), (B), (C), (D), (E), and (F)
The box descriptions are quite straightforward, so you just need to check the boxes accordingly. Make sure to create separate forms if your multiple transactions are categorized in different boxes.
FYI, you will likely receive an IRS Form 1099-B for cryptocurrency transactions if you sold your crypto on brokerages like Robinhood.
3. Write down the dates you sold and purchased crypto, the sales price, the cost basis, and the crypto gains and losses.
Wait, should we report the crypto losses too?
Yes, since a cryptocurrency is treated as property for tax purposes, you are required to report your crypto losses to the IRS. Crypto losses can also offset any capital gains that can lead to reducing your taxes. More information on how to save tax money with crypto losses can be found here.
All right, we’ve now completed Form 8949. It’s time to move on to Sch. D.
While Form 8949 is used for reporting every transaction one by one, Sch. D is more like an all-in-one form to report net gains and losses.
Sch. D looks like this:
As you can see, the net crypto capital gains and losses are calculated here, and the “final” result will be reported on Form 1040.
Step 4: Add your other crypto income to the tax report
In the vast world of cryptocurrency, other streams of crypto income such as airdrop, hard-fork, sale of non-fungible tokens (NFTs), rewards, and mining exist. Basically, a lot of these other crypto incomes could be considered ordinary income - and this means they are likely taxable.
We’ll cover this more in-depth in another article, so that you can be well-prepared this 2022 tax season.
Cointelli Takes Care of All Your Tax Savings Needs
Cointelli is the brainchild of a certified public accountant (CPA) who specializes in cryptocurrency, and was designed to help you save on crypto taxes safely and legally. Crypto taxes can be complicated and can garner different results depending on how capital gains are calculated. Cointelli makes this all a piece of cake, since it simplifies the organization process of all of your transactions from multiple crypto exchanges.
All you have to do is import your crypto transactions from your exchanges into Cointelli’s software, and Cointelli will automatically organize your purchase costs, purchase dates, selling costs, selling dates, holding periods, transaction fees, and more. Form 8949 and Sch. D will be ready to go by the time you finish that cup of coffee you thought you needed when filing your taxes. Once it is ready, you can simply send it to your tax professionals or tax software to include your crypto gains or losses in your tax return.
Cointelli can handle all these new and future changes while you sit back, relax, and take advantage of your tax savings.
Got any crypto tax questions? Ask us on Twitter! Our co-founder & crypto tax expert Daniel @Cointelli_Dan will answer you directly!