Preparing Crypto Taxes in 2023? Here’s How-
The year is already halfway over, and it will be time to prepare for Uncle Sam’s payday once more. For many, paying taxes on your cryptocurrency can sometimes be a logistical nightmare. Every cryptocurrency transaction has an accounting as well as a tax implication. There is currently a bipartisan bill introduced in the Senate that would make tax exemptions for gains/and transactions under $50. Until the Crypto Tax Fairness Act passes, transactions of all sizes will need to be accounted for.
The bear market that world markets have found themselves in has changed investing and trading strategies, making things more complicated on the tax front. Think dollar-cost averaging, staking, buying the dip, and more.
Good wallet hygiene is something that everyone from active traders and casual possessors of digital assets should always keep in mind. You’ll want to label each of your wallets according to their purposes, making sure that you know what it’s for.
If you’ve been paid in Bitcoin this year, you’ll want to have a dedicated wallet for payment. Some may advise keeping your crypto transactions together in one wallet, although this makes things more difficult to know what they’re for. Having one wallet will also help your accountant to understand your transactions.
If you’ve decided to dabble into crypto for the first time this year and “buy the dip”, you’ll want to mention it to your tax professional so that they are aware. Multiple exchanges on various blockchains can give your accountant agita. Communicating with your CPA ahead of tax season can help you prepare and make sure that you are both on the same page.
If you have been active in trading this year amongst the market volatility, you’ll want to make sure that you are keeping detailed records of your transactions. There is a misconception for some people that the blockchain will keep track of your exchanges for you, and while in some respects it does, it is not easily translatable and is sometimes missing crucial information. Keeping track of this information somewhere either digitally or manually will make your and your accountant’s lives this upcoming tax season.
If you want to make the process simple for your CPA, using multiple exchanges is a no-go. This creates unnecessary headaches for a CPA that can be avoided. This is because each exchange outputs its data in different formats which makes it more difficult when trying to combine transactions together. Not to mention that it increases the likelihood of introducing errors, which nobody wants. Using one exchange will make things more uniform and easier to process once tax season rolls along.
Cryptocurrency, being relatively new, is constantly changing in terms of regulation. Crypto taxes may look very different this year than they will a few years from now. To eliminate some of the uncertainty in the process, there are always software solutions that will integrate directly with your wallet. This will automate and streamline the process making tax time a breeze. There are lots of good options that will work best for you depending on your personal needs.