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Death & Taxes are Life’s Only Certainties – TaxBit is Making One of Those Less Scary
It’s been famously said that the only two certainties in life are death and taxes. For many of us, the only thing spookier than preparing your own funeral arrangements, is preparing your own taxes – especially if you’re in crypto. That’s why it might be a good idea to partner with crypto tax experts heading into the end of the year.
The cryptocurrency market saw a tremendous increase in 2017 and then a significant drop in 2018 due to the high growth year. In 2017, I witnessed many taxpayers who made huge taxable profits and lost all their assets the year after that. Now, the IRS calls. Those individuals must still pay taxes on the earlier gains but don’t have enough funds. “Proper planning and tax optimization can help to prevent that.”
According to Justin Woodward TaxBit is co-founded by TaxBit’s founder, Ralph (NASDAQ:) a digital asset tax lawyer.
TaxBit is a tax-solution provider for cryptocurrency for many years. It’s great solution that connects directly to the crypto exchange you use and does all the transaction tracking and using smart programming to identify taxable transactions.
TaxBit has launched its Corporate Suite of Crypto Tax Solutions this week. These five tips will help you plan for your future and current tax season.
The IRS currently classifies cryptocurrencies as “property” not securities. As such, that asset class is taxed at the short- or long-term capital gains rate depending on how long you’ve held an asset. “If you hold a cryptocurrency for a year or less, the short-term tax rate for 2020 ranges from 10 to 37 percent depending on income and filing status. If you hold a digital asset for longer than a year the long-term tax rate applies, ranging from zero to 20 percent on profits,” said Woodward.
Another important consideration is understanding that you’re not taxed only when you convert your cryptocurrencies back into fiat currencies such as dollars or euros. “Taxable events can occur even if you swap a crypto asset for another token including stable coins such as USDC or DAI. A key determinate of the taxable amount for each transaction will depend on your initial cost basis, which was how much you initially paid for each respective token versus its price at disposition when you sold or converted into something else,” he said.
Woodward noted, however, that unlike most other assets, the initial acquisition of any digital token isn’t usually considered a taxable event. However, it is possible to move tokens to another crypto exchange like Coinbase (NASDAQ) or a wallet. In most cases, though, a sale or profit on a token can be a taxable occasion. “Also, if someone sends you a digital asset in exchange for a product or service or you earn interest in the form of a cryptocurrency those are taxable the same way interest earned on traditional securities would be taxed,” he noted.
When it comes to tax minimization tactics, cryptocurrencies can be excellent tools to easily “harvest losses” if you’re a high-income earner looking for some write-offs. Smart investors will be able to use volatility as a benefit of cryptocurrency. When wide swings happen, it’s extremely wise to take a loss if you can. “Say you have one that drops $5,000 in a day. Legally, you can exchange it for any stable coin or cryptocurrency. Then instantly buy that Bitcoin back within minutes. As with all securities, there is no waiting period for repurchases. This is a tremendous way to intentionally harvest losses by documenting the initial loss while also lowering your cost basis on the repurchase.”
The best part, perhaps, is that it’s easier than you may think to monitor the tax implications of any cryptocurrency trades. Linking the exchanges where you make transactions and crypto wallets to some of the newer crypto-focused tax tracking software can fully automate the process for both individual investors and businesses — even for transactions dating back to 2014. Woodward stated that the most recent tax changes allow past losses to be carried forward until full claim.
To The Flipside
- If this upcoming tax season is your first year dealing with the tax implications for cryptocurrencies, it’s best to seek expert help by contacting a tax preparer or accountant with experience in digital assets – but don’t wait.
- Many people mistakenly believe that taxes are completed only once a year, but it requires vigilance all year long especially when you’re invested in cryptocurrencies.
What are the reasons to care?
Charles Rettig, the IRS Commissioner, stated earlier in the year that due to the recent rapid growth in cryptocurrency and the interest in it, the U.S. government does not collect $1 trillion annually in revenue.
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