The 2021 tax deadline is quickly approaching (May 17, 2021). If you had cryptocurrency transactions in 2020, here’s what you can do to ensure that your taxes are filed correctly and on time.
Transactions That Are Taxable vs. Non-Taxable
To begin, determine if you had any taxable transactions in 2020. A partial list of taxable and non-taxable cryptocurrency transactions is provided below.
Taxable and non-taxable cryptocurrency transactions
If you didn’t have any taxable transactions, you don’t have to file anything related to cryptocurrencies. Non-taxable transactions, such as receiving a gift, can prompt you to answer “Yes” to the virtual currency question on Form 1040: “Did you obtain, sell, give, swap, or otherwise acquire any financial interest in any virtual currency at any time during 2020?”
The next move is to collect information. Check your exchanges, wallets, and other websites to see whether any tax documents (Forms 1099-K and 1099-B, for example) are stored in the Tax Center. If you see a Form 1099-K or a Form 1099-B with an incomplete cost basis, go to the next stage. If you don’t see any tax forms, make sure to download the transaction history report.
You can skip the next phase and go straight to tax filing if you receive a Form 1099-B with cost basis details (unlikely).
Tax Software for Cryptocurrencies
Once you have all of the transaction details, you can reconcile your deposits, trades, and other transactions using cryptocurrency tax software to arrive at capital gains (or losses) and other income that needs to be taxed. You could be underpaying or overpaying taxes if you don’t reconcile your accounts.
File Federal and State Taxes
You will use a self-serve tax reporting program like TurboTax or an accountant to actually file your tax return with the IRS and the state after the capital gains and losses have been completely reconciled using a cryptocurrency tax software of your choosing.
This article is for informative purposes only and is not meant to be tax advice. Please seek tax advice from a specialist.