Since cryptocurrencies are handled in such a unique way, it’s crucial to maintain track of every transaction you make to make sure you don’t owe any taxes.
This comprehensive guide was written by us as a service to you in that regard. It will help you manage your federal income tax. You also use a crypto tax calculator to find the estimated tax amount for your crypto tax earning.
How to Use the Calculator for Crypto Taxes
Using a cryptocurrency tax calculator (visit here). Selecting the coin you want to convert is the first step. The currency can be chosen in the dropdown box to accomplish this. You must then pick the “Calculate” button and enter the desired cryptocurrency conversion amount.
The breakdown of your bitcoin holdings will appear on the following page. You can see the total worth of all of your cryptocurrencies at the top of the page. You can see the conversion price from your assets in USD in the bottom section.
For that, click the “Convert” button. A screen asking you to confirm will now appear. Choose the “Yes” button to proceed or “No” button to stop.
You may view your conversion results on the next page. The entire value of the cryptocurrency you converted as well as the conversion rate will be shown.
Click “Next” after you’re done to go to the final page.
You can see here how much of your cryptocurrency assets were ultimately converted to US dollars. The exchange rate is calculated using the most recent rates from Gemini, Kraken, Binance, and Coinbase.
You have it, then. Your cryptocurrency to USD conversion should be made easier by this.
1. Recognize the transaction history
A record of your transactions is required if you trade cryptocurrencies. This record will help you determine your gains or losses for the full year as well as if you made a profit or loss on a particular day.
When using conventional money, such as Bitcoin, you are required to document each transaction. However, if you use a cryptocurrency like Monero, which employs cryptography, you are not required to keep track of every single transaction.
2. Record Gains and Losses
The value of cryptocurrencies may change over time. As a result, purchasing them may result in financial loss. Moreover, selling them can also result in a profit.
The following forms of gains are possible while purchasing cryptocurrencies:
- gains from cryptocurrency trading.
- Make money from mining.
- capital gains from cryptocurrency investments.
- capital gains from fiat currency conversion of cryptocurrency.
The situation changes when you sell your cryptocurrency, though. When you sell it, you can lose money:
- mining-related losses
- selling-related losses
- losses on cryptocurrency investments in terms of capital.
- capital losses resulting from cryptocurrency to cash conversion.
Due to changes in market pricing, cryptocurrencies may potentially lose value. You must therefore keep track of your earnings and losses.
3. Keep a Gains and Losses Log
You’ll have to keep track of your crypto profits and your losses. Utilizing the Ledger Wallet, you may do this. For a number of cryptocurrencies, like Bitcoin and Ethereum, this unique wallet is quite useful.
You can also utilize pre-funded paper wallets with this wallet. This mean that you don’t need to have extra cash to get started.
4. Always Carry Paper Money
You can use a paper wallet in addition to a bitcoin exchange to keep track of your transactions. You can physically store your money in this wallet.
Never store or keep your private keys on a computer or other electronic device, this also includes your passwords. Instead, keep them safe by keeping them in a paper wallet.
Is it valuable to keep track of?
Here are five reasons why you should maintain track of your cryptocurrency holdings if you’re debating whether it’s worthwhile.
1. Your portfolio will benefit.
You should monitor your investments in assets so that you are aware of their performance. Likewise with cryptocurrencies.
You won’t be able to tell if your bitcoin investments are appreciating or depreciating in value if you don’t keep track of them. Therefore, you’ll never be able to tell if your return is higher than the market’s.
2. It aids in safeguarding your investments.
When you invest money in cryptocurrencies, you have the option of how to store your coins.
They are safe in a paper wallet. This implies that since the paper itself isn’t very secure, you’ll need to store them in an airtight container.
Paper wallets are also frequently heavy, which makes them less practical.
Hardware wallets, which retain your private keys and securely hold your funds, are another option. However, you’ll need to disclose your private key if you need to remove your coins from the hardware wallet, which puts your money at danger.
3. It might assist you in maintaining market awareness.
The trading apps that are accessible on phones are used by many traders. These apps enable you to view a coin’s current value as well as its price.
You can improve your purchasing and selling decisions with the use of trading applications, which can increase your profits.
4. You get the chance to learn.
If you have a location to save your money, learning about cryptocurrencies is much simpler.
You have no method of keeping track of your money when you keep it on an exchange. Simply put, you’re storing the money on an outside site.
However, you can monitor how your money is doing if you have a system in place for keeping track of it.
In this manner, you may determine if you are earning a profit or a loss. Additionally, you’ll be able to gain more knowledge about the currencies you invest in, which can aid in decision-making.
5. You can employ it to instruct your kids.
It can be challenging to explain how cryptocurrencies operate, despite being a fascinating new asset class.
Teaching your children about money is crucial when making investments.
It’s good to tell them how cryptocurrencies work and prepare them for what’s coming in the web3 space and how to manage your financial investments.
The value of cryptocurrencies in daily life
The technology used to create digital currencies is known as cryptocurrency, and it has gained enormous popularity all over the world. You must comprehend this technology and its advantages before employing it in order to save time.
The first advantage of cryptocurrencies is their total anonymity. It is impossible to pinpoint the owner of it. You won’t risk getting caught if you use cryptocurrencies to make purchases.
The fact that this technology offers a secure transaction is its second advantage. You don’t have to pay taxes on bitcoin if you wish to make a purchase. This implies that you are certain not to pay taxes on whatever you purchase using cryptocurrency.
The fact that this technology is useful is its third advantage. You can invest in Real estate as one of the things you can do with that crypto money. The capability to rapidly make payments is the fourth advantage of this technology. With cryptocurrencies, you may effortlessly send payments and make purchases.
Know about the form that enables you to file your taxes from capital gains. You can refer to 1099 forms.
Some people think that cryptocurrencies are totally digital and don’t really exist, while others think that they are forms of money. There are numerous ways to keep tabs on your cryptocurrency activity, depending on your objectives. You can make sure that you appropriately declare your revenue and prevent any fines that may result from an error by maintaining detailed records of all your transactions. It is simple and accurate to submit taxes if you maintain track of every transaction.
But sometimes, taxes can be a massive responsibility, especially for self-employed individuals, independent contractors, freelancers or gig workers. It’s because they are already working everyday and have to take care of a lot of business affairs on their own daily. With the use of A.I, you can make your crypto taxes much easier. You can use a smart tax tool like FlyFin that automatically finds your business travel deductions (for example) expenses and tracks all your income.