Since its inception, cryptocurrency has managed to create a stir in the financial world. Broadly speaking, cryptocurrency is a digital or virtual currency that serves as a medium or platform for exchange. Financial transactions, asset transfer, and creation of more units under this system is only done under stringent cryptography. An important difference between cryptocurrency and other forms of digital currency is that cryptocurrency exclusively relies on decentralized control.
Like real currency, cryptocurrency is also entitled to taxation according to the rules of the land. Here is a comprehensive guide to help you understand the nuances of filing crypto currency taxes.
Taxation of cryptocurrencies
Before we go ahead, it is important to understand that these taxation processes may vary from country to country. Therefore, it is best to read up about the laws pertaining to your country of residence.
Cryptocurrency is considered to be a capital asset in most countries. Consequently, if you use it for sale, purchase or any monetary gain whatsoever, your gains will be under tax scrutiny. Likewise, if you incur losses in cryptocurrency transactions, you can deduct them in your tax ledger and obtain a tax reduction. There might be specific variations in these calculations between countries, but the process for tax calculation remains fairly standard.
When is your cryptocurrency taxable?
The IRS considers cryptocurrency transactions as taxable when a crypto trader sells it for any other currency, trades it for other kinds of cryptocurrency, receives it or uses it to buy something. In contrast, transactions that involve purchase of more cryptocurrency with other currencies, gifting it to someone within limit, transferring it between your wallets, and donating it to an organization that is exempted from tax.
Getting ready to file crypto taxes manually
If you choose to complete your crypto tax return yourself, you need to arrange:
● A complete transaction exports record from all exchanges and currencies, include details about each withdrawal and deposit, marked by trading pairs and commissions.
● Calculate the historical cost basis for the last 2500 transactions.
● Sort out the transactions and identify transfers between wallets and other non-taxable transfers and mark investments, transactions and trades.
● Fill up all relevant forms as specified by the IRS and provide all data that is asked for.
As you see, this process is quite elaborate and necessitates a lot of juggling between transactions across dozens of exchanges and wallets. To make matters more harrowing, there are several data formats to address. It is not uncommon for people to get frustrated with all this work, and end up overpaying taxes.
How does Zenledger help?
Crypto accountants and investors may have a difficult time trying to manage their crypto accounts and taxes. This is where a cryptocurrency trading software like zenledger comes to their rescue. It seamlessly monitors their wallets and maintains a clean record of their transactions and exchanges. Here are some ways by which Zenledger makes cryptocurrency taxation and management easy for you.
Big News! ZenLedger is now an official partner with @turbotax to support #Cryptocurrency #investments. We're making it even easier to handle your #CryptoTaxes in 2019! With a few clicks, upload capital gains transactions directly. https://t.co/IVvPuuittK pic.twitter.com/RHdN045QHA
— ZenLedger (@ZenLedgerIO) February 25, 2019
● Compatible with the IRS system
Zenledger has been designed for optimized functioning with IRS requirements. Therefore, it will create your cryptocurrency account statements and manage transaction details impeccably and in a format that is acceptable and compatible with the IRS guidelines.
● Quick and easy
With a crypto managing software like Zenledger, it is possible to create all necessary documents like income reports, capital gains reports, closing reports and donation reports. All these tasks, and much more, can be done just by a few clicks. Therefore, it is highly unlikely for you to miss any crucial detail that will make you overpay your crypto taxes.
● Compatibility with major exchanges and fiat currencies
Zenledger is a hundred percent compatible with all major cryptocurrency exchanges and fiat currencies across the globe. Examples include Bitcoin, Litecoins, Ethereum, Euros, Dollars, Yen, and Pounds Sterling. Therefore, Zenledger will be the ideal cryptocurrency tax software for anyone.
● Convenient and accurate
Another great feature of a software like Zenledger is that it has a great and intuitive user interface. This means that uploading transaction details, managing these details and creating tax reports is extremely hassle-free. In addition, it also provides details like Form 8949, Schedule D, and tax loss harvesting. It also allows you to visualize your entire transaction history under Grand Unified Accounting.
● Complete transparency
One of the striking features of Zenledger is its complete transparency when it comes to algorithms. This allows you to have total control over each item and to see how your tax obligation is calculated across all your wallets and crypto exchanges.
By choosing a crypto taxation software, you eliminate the hassles associated with arranging and tracking your transactions. Additionally, you ensure that you don’t overpay taxes.
Whether you choose to manage crypto and taxes yourself, or choose an appropriate software to do these tasks for your, it is important to pay these taxes. According to latest regulations, many cryptocurrency exchanges have made it mandatory to report trading and transaction history to the designated federal bodies. In addition, several governments themselves are making more stringent laws to collect information about tax evaders buy collecting their crypto wallet and transaction details.
In case you fail to file these crypto tax returns, knowingly or unknowingly, you will be caught by the IRS and be made to pay a hefty fine. Since your crypto transactions are on a public domain and are not editable, it is best to declare any income or gains that you have from cryptocurrency.