What you need to know when preparing your taxes if you trade crypto

It’s tax season. Hooray. 

Doing your taxes is confusing to begin with, but for crypto traders it can be an absolute nightmare. Here’s what you need to know.

Crypto is property, not currency

The most important thing to remember is that the IRS views crypto as “property,” which means it’s more like a stock, bond, or other security than a currency like euros or dollars. This means that ANY purchase you made with crypto, crypto-to-crypto trade, or sale of your crypto for dollars must be reported — no matter how small. If you bought a bagel with bitcoin, the IRS wants to know about it.

What DOESN’T need to be reported?

HODLing. If you bought crypto with USD and held onto it, you do not need to report it. You will, however, need to check “YES” on Form 1040, indicating that you did acquire “financial interest in any virtual currency.”

What if I lost money?

If you sold your crypto for a loss, it still needs to be reported. But… if you’re HODLing crypto that has lost value, that’s technically an unrealized loss. You won’t report this now, but you will need to report it once you sell or trade the depreciated crypto asset.

Don’t break wash-sale rules

If you owned stocks that lost value, and you wanted to make your losses realized, you might think a clever move would be to trade away your stocks and then immediately buy them back. After all, that would make your losses realized, and you could then report them on your taxes. The wash-sale rule is the IRS’s way of preventing people from doing this very thing. And while some may debate whether it applies to crypto, you should assume it does — it’s better to be safe than sorry.

In short, don’t try this with crypto! You run the risk of incurring penalties.

Everything in its right form

There’s a form for everything, and that includes your crypto taxes. Depending on what you’re reporting, there are different forms for each situation. 

Most people will report their crypto taxable events on an 8949 form, schedule D — the same place where capital gains are reported. Indicate your profit and/or loss there. 

For mining or small businesses related to crypto, you’ll need to use a schedule C

For staking and other forms of income related to crypto, use the schedule 1 on the 1040 form, where you’d indicate “other income.”

Don’t forget the deadlines. It’s always April 15.

April 15! Etch it into your mind’s walls. If you run an S corp business, you’ll need to file by March 16, but for most of us, we’ll be rushing to get our returns in by mid April.

Extracting your tax info from eToro

eToro lets you easily extract necessary tax information from your account. Here’s how:

  1. Select PORTFOLIO from the menu.
  2. Select the history icon (looks like a clock with an arrow pointing counterclockwise)
  3. Select SETTINGS
  4. Choose your start and end date — typically, you’ll want the entire year for which you’re filing.
  5. Select the check mark

That’s it! You should see a statement of your trading activity. You can download this as a PDF or Excel spreadsheet.

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eToro USA LLC; Investments are subject to market risk, including the possible loss of principal. This is not meant to be tax advice or financial advice of any kind. The above information we compiled from online tax forums. Please, consult a CPA or lawyer if you have questions about filing your tax return, forms to use, or what is/is not taxable. eToro is not a tax advisor.