Crypto Investments in 2021

Crypto Investments in 2021

There are close to 17,000 cryptocurrencies, and there are some essential details to know if you made any crypto investments in 2021. Tax professionals and consumers have more than ten years of experience to guide them in taxing decisions, but things can change. Although the official tax classification is not public regarding cryptocurrencies, the IRS is aware of investors’ profits in 2021.

How can you avoid a tax nightmare?

An investor should assume all crypto is intangible property:

In the original 2014 IRS, notice Bitcoin was the first and only crypto mentioned. The notice considered Bitcoin as intangible property for tax purposes.

Kate Waltman is a New York-based accountant specializing in cryptocurrency. Kate said, “the conservative approach from a tax perspective is to assume that all other crypto tokens and altcoins will follow the same classification.” “But in actuality, bitcoin and Ethereum are the only two that have been specifically classified individually.” Ethereum is similarly classified as an asset like bitcoin. Staying on top of your crypto investments, transactions and records are very important for taxes.

Crypto Investments result in capital gains:

Any profits an investor makes from trading or selling a stock or asset will result in paying capital gains. Technically, swapping a cryptocurrency for a US dollar or trading Bitcoin for Ethereum is exchanging an asset. Waltman added, “Unfortunately, with capital gains, you have to report all of them even if you have a $1 capital gain.” “If anyone has invested in the stock market in the past, they’ll know you get a statement from your brokerage account. Even if you have $5 of capital gains, they’ll be included in your statement.”

The same goes for crypto. However, you’re unlikely to get a statement unless you traded crypto through a regulated site that offers tax documentation.

For taxes that are done through Turbo Tax or any other online software, a box will appear to indicate whether you had crypto investments in 2021. Once checked, the website will give the appropriate forms. When working with an accountant or on your own, you’ll need to fill out a Scheduled D Form 1040.

A great way for crypto investors to track their digital wallets is by the use of a portfolio tracker:

The tracker will also report their crypto investments to the IRS. Instead of keeping track of every transaction, you can link your digital wallet to the portfolio tracker. According to Waltman, some common apps include Cointracker, ZenLedger, and Koinly. Of course, every app is different, and they each have their fees.

Because bitcoin is a new asset class with constantly evolving regulatory rules, taxpayers must report their earnings to the IRS. If you’re not sure how to record gains from non-fungible tokens (NFTs), altcoins, or any other Defi transaction, use the best data you have to show proof of asset value and overall profits.

Waltman went on to say, “As a taxpayer, your responsibility is to make a good-faith effort. As long as you can tell the IRS that you made a good faith effort and you and your accountant agree the valuation you’ve determined is as accurate a possible given the data that was available the day you received it, then you did your job.”

Once you have completed your taxes and you realize you made a mistake. There may still be a chance to fix them. Waltman says, “You have a three-year window to amend prior year returns without any negative consequences. If you didn’t report two years ago – maybe just because you genuinely didn’t know how or you didn’t have the help – you do have three years to amend.”










Crypto Investments in 2021

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