- The IRS has revealed a draft of its updated 1099-DA form for reporting crypto gains
- The new form has simplified requirements, removing the need for wallet addresses and transaction IDs
- This change has prompted a revision of top tips for completing crypto taxes in 2024
The Internal Revenue Service (IRS) recently revealed a draft of its updated 1099-DA form, which it says offers more “ease and clarity” when it comes to reporting your crypto gains. This includes scrapping demands to know crypto wallet addresses, transaction IDs, and the time crypto transactions took place pertinent to their investment activity for the given tax year. With this change in mind, it’s time to revise the top tips for completing your crypto taxes in 2024.
Keep Detailed Records of All Transactions
One of the most important aspects of managing your crypto taxes is maintaining comprehensive records of all your cryptocurrency transactions. This includes buying, selling, trading, and even receiving crypto as payment or mining rewards.
You should note the date of the transaction, the amount and value of the cryptocurrency at the time, and any associated fees. Using cryptocurrency tax software can make this process easier by automatically tracking and organizing your transactions.
Understand the Difference Between Short-Term and Long-Term Gains
Cryptocurrency is subject to capital gains tax, which can be categorized as either short-term or long-term, depending on how long you hold the asset. If you hold your crypto for less than a year before selling, your gains are considered short-term and are taxed at the same rate as your ordinary income.
If you hold the asset for more than a year, the gains are classified as long-term and are taxed at a lower rate. Understanding this distinction can help you plan your transactions more strategically to minimize your tax liability.
Be Aware of Taxable Events
Not all crypto-related activities are taxable, but many are. Taxable events include selling crypto for fiat currency, trading one cryptocurrency for another, and using crypto to purchase goods or services. Even receiving cryptocurrency as payment or from mining activities is considered taxable income.
However, simply transferring crypto between wallets or holding onto it is not a taxable event. Knowing what triggers a tax obligation can help you avoid surprises when it’s time to file your taxes.
Consider the Implications of Crypto-to-Crypto Trades
Many people mistakenly believe that trading one cryptocurrency for another does not create a taxable event, but this is not the case. The IRS requires you to report the fair market value of the cryptocurrency at the time of the trade, which means you could owe taxes on any gains made during these transactions.
It’s important to calculate the gain or loss based on the difference between the cost basis (what you originally paid for the crypto) and the value at the time of the trade.
Don’t Forget to Report Losses
If your cryptocurrency investments have not performed well, there is a silver lining: you can offset your gains with losses. This means that if you sold crypto at a loss, you could use that loss to reduce your taxable income, potentially lowering your overall tax bill.
You can also carry forward losses to future tax years if your losses exceed your gains. Reporting losses is just as important as reporting gains and can be a valuable tool in managing your tax liability.
Conclusion
Handling cryptocurrency taxes in the US can seem daunting, but with the right knowledge and preparation, you can navigate this complex landscape with confidence. Keep detailed records, understand the nuances of taxable events, and be mindful of both gains and losses.
By following these tips, you’ll be better equipped to manage your crypto taxes effectively and stay compliant with IRS regulations.
