IRS Crypto Tax Deadline 2024: A Guide
As the crypto space evolves, tax regulations continue to catch up. The IRS is still offering occasional guidance on cryptocurrency tax matters. It's up to you to stay informed to ensure accurate tax calculations, filings, and payments each year.
With tax season upon us, it’s time to start preparing.
If you are involved in crypto trading, you should understand the latest tax regulations that could impact your filings. These include changes in business deductions and adjusted income tax brackets.
The crypto accountants have prepared a detailed guide to this. Read on till the end.
How the IRS Tracks Your Crypto Taxes?
The IRS began accepting 2023 tax returns on January 29, 2024 and expects over 128 million forms to be filed before the official deadline of April 15, 2024. Although crypto transactions are often considered anonymous, the IRS has ways to track them.
All transactions on public blockchains like Bitcoin and Ethereum are visible to the public. The IRS works with vendors like Chainalysis to connect these transactions to known individuals and combat tax fraud.
How to File Your Crypto Taxes?
In the US, cryptocurrency is subject to capital gains and ordinary income taxes. If requested by the IRS, your crypto exchange or broker must submit the necessary paperwork and provide you with a copy.
You, the taxpayer, are responsible for reporting all taxable crypto activity on your tax return. Here’s how you can file your crypto taxes in five simple steps:
1. Calculate Your Crypto Gains and Losses
Each time you sell, trade, or exchange crypto, you trigger a taxable event. To determine your capital gains or losses, subtract your cost basis (the original purchase price, including fees) from the asset’s value at the time of disposal.
2. File IRS Form 8949
Use IRS Form 8949 to report your capital gains and losses from crypto sales. Every crypto sale made during the tax year must be recorded on this form. If you made other non-crypto investments, use separate Forms 8949 for those transactions.
3. Transfer Totals to Schedule D
Once you have completed Form 8949, transfer the totals to Schedule D of your Form 1040. This form helps you differentiate between short- and long-term capital gains, which are taxed at different rates.
4. Report Additional Crypto Income on Form 1040
If you earned other forms of crypto income, such as from mining, staking, or receiving payments in crypto, you need to report this as ordinary income on your tax return.
Depending on how you received this income, use Schedule 1, Schedule B, or Schedule C.
5. Complete the Rest of Your Tax Return
After reporting all your crypto gains, losses, and income, complete the rest of your tax return as usual. Crypto tax software like CoinLedger can simplify the process by linking your exchanges and wallets to generate tax forms automatically.
What Happens If You Don't Report Crypto on Your Taxes?
Failing to report your crypto activity could lead to serious consequences. If your tax return is inaccurate or incomplete, the IRS may penalize you with a 20% inaccuracy fine, plus interest.
Failing to report entirely could be classified as tax evasion. It carries penalties of up to $250,000 and a potential five-year prison sentence for each year you don’t file.
A Last Word!
Stay informed and ensure your crypto taxes are filed correctly to avoid penalties. Consult with experts at CryptoAccountants to streamline your crypto tax filing process and make sure you are compliant with IRS regulations.
Reach out today to get started on your 2024 crypto tax preparation!