How To File Your US Crypto Tax Returns

Let the countdown begin

I was born in the mind

Take the head of a snake

Behold Armageddon

Ain’t no love for the rich

Only strong will survive

’Cause we live by the sword

Plus sixty degrees

For the black and the blue

For the sun, Judgment Day

-Judgement Day, Method Man

Judgment day will be here faster than you know it. I’m not talking about Armageddon. I’m talking about filing your 2022 tax returns. As you make transactions in cryptocurrency, maintain accurate records that will help you file your annual tax returns. Document when you receive, sell, exchange or dispose of your cryptocurrency, including fair market values. In this article, I will discuss the forms that you need to know in order to file your cryptocurrency tax returns.

Form 1040 and Schedule 1

You must report ordinary income from virtual currency on Form 1040, U.S. Individual Tax Return, Form 1040-SS, Form 1040-NR, or Form 1040, Schedule 1, Additional Income and Adjustments to Income, as applicable. If you received a cryptocurrency as a payment for providing any goods or services, the holding period does not matter. They are taxed, and should be reported, as ordinary income. Federal tax on such income may range from 10 percent to 39.6 percent. In addition, coins received from a hard fork exercise, or through other activities like airdrop, it is treated as ordinary income.

The Internal Revenue Service has created a Schedule 1 for the Form 1040 to include a question up top about whether a taxpayer has sold, received, exchanged or acquired cryptocurrencies such as Bitcoin or Ethereum. The question asks, “At any time during 2022, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?” It then offers the options of answering either yes or no. Taxpayers who file Schedule 1 to report income or adjustments to income that can’t be entered directly on Form 1040 should check the appropriate box to answer the question about virtual currency. Taxpayers don’t need to file Schedule 1 if their answer to this question is no and they don’t have to file Schedule 1 for any other purpose.

Schedule A

Use Schedule A to figure your itemized deductions. In most cases, your federal income tax will be less if you take the larger of your itemized deductions or your standard deduction. The IRS classifies cryptocurrency donations as property, meaning they are not subject to capital gains tax and are fully tax deductible. You are allowed to donate cryptocurrencies to qualified 501(c)(3) organizations and deduct it on your Schedule A.

Schedule C

Anyone who operates a business as a sole proprietor must fill out Schedule C when filing his or her annual tax return. IRS form Schedule C accompanies the main tax return form, 1040, for taxpayers who must report a profit or loss from their business. If coins were received from mining activity, it is treated as ordinary income. Miners will include their income and expenses on Schedule C. Additionally, there may be 15.3 percent self-employment tax to be paid on such receipts.

Schedule D and Form 8949

Schedule D (Capital Gains and Losses) of Form 1040 is used to report most capital gain (or loss) transactions. But before you can enter the net gain or loss on Schedule D, Form 8949 (Sales and Other Dispositions of Capital Assets) must be completed. Anyone who sells or exchanges a capital asset such as cryptocurrencies must complete Form 8949.

If you brought cryptocurrency as an investment and sold at it a profit, the treatment of such income depends on the holding period. If held for less than a year, the net receipts are treated as ordinary income. If the holding period is for more than a year, it is treated as capital gains and may attract an additional 3.8 percent tax on net investment income.

State Income Taxes

Don’t forget to file your state tax returns along with your federal. Most of us don’t live in states like Florida that don’t have to file state tax returns. However, if you are in a state that must file, have a conversation with your tax accountant on the state tax returns.

Need help with your crypto taxes? Well, contact Jamaal "Crypto J" at jamaal@jstaxcorp.com!

Podcast: https://anchor.fm/36chamberscryptotaxes

Website: www.36chambersofcryptotaxes.com

YouTube: https://www.youtube.com/channel/UCNoiZj7UxmuMrPtyIaSX41Q

IG: @36chamberscryptotaxes

Twitter: 36cryptotaxes

How To File Your US Crypto Tax Returns

Want tax & accounting tips and insights?