Like a visit to the dentist, tax season is an annual event to be dreaded and endured. That’s not to say it has to be painful, however, especially if you make use of tax tools throughout the year. Just as a dental check-up will go surprisingly well if you brush regularly throughout the year and go easy on the soda, submitting your tax return is a cinch if you’ve kept organized records for the past 12 months. Plan ahead and you’ll glide through tax deadline day – or ease through at least without too much trouble.
Even with the best organizational skills in the world, however, ownership of cryptocurrency is bound to complicate your tax affairs. The reasons for this include regulation that are in many cases vague, and at other times downright complicated and convoluted.
If you reside in the US, for example, you’re meant to keep a record of each crypto trade you place, as you are due tax on any profits realized. Thankfully, there are tools that will assist with this, recording all of your trades through connecting to exchanges APIs and automatically adjusting your tax obligations. These can be downloaded as a report and submitted at the end of the tax year.
Seek advice from a crypto tax expert
Much like experienced blockchain developers, crypto tax experts are a rare breed that in high demand. Thankfully, their services don’t cost nearly as much like those of a blockchain dev, and their advice is worth its weight in digital gold. There are a number of specialists within the cryptosphere who will help you prepare your cryptocurrency taxes. Even if you decide not to enlist their services, they are worth seeking out on account of the general advice they frequently publish on the matter. Crypto tax firms naturally want to demonstrate their authority and publish detailed articles and tutorials on tax preparation.
Whether you’re a crypto veteran or a satoshi-stacking newb, tax is likely to be one of your weakest suits within the cryptosphere, and it’s not your fault; in many countries, the tax agency has yet to issue full and foolproof guidelines on cryptocurrency taxation. As a consequence, you’re obliged to navigate a minefield of archaic and overlapping regulations, which can sometimes contradict one another. Do staking payouts qualify as a taxable event? What’s the status of synthetic crypto assets that are used in derivative trading? Do you have to declare tokens that have yet to be unlocked? All good questions that will flummox a traditional tax advisor – hence the need to seek out a firm that specializes in digital assets.
Prepare your tax affairs
Regardless of whether you choose to prepare your taxes yourself or outsource the job to an expert, there are steps you should take in advance. For one thing, you’ll want to start using a good cryptocurrency portfolio tracker – preferably one that has tax-recording capabilities built-in.
Alternatively, or additionally, you can keep a record of all your cryptocurrency transactions in an Excel spreadsheet; there are templates you can access that have the formulas programmed and which only require light customization. As the maxim goes, the best time to buy bitcoin was 10 years ago and the next best time is tomorrow. It’s the same with your taxes: start now and by the time deadline day looms, the hard work will have already been done.