Invested In $DOGE? Here’s How To Do Your Crypto Taxes

As a result of the crypto market having grown at a staggering pace over the course of the last year or so, many individuals have been able to rake in handsome profits thanks to their digital currency investments. To put things into perspective, since the start of 2021, the capitalization of this fast-evolving industry has increased from $1 trillion to over $2.3 trillion. As a consequence, Bitcoin and Ether are now worth more than companies such as Alibaba, Tencent, Facebook, Walmart, MasterCard, Bank of America, amongst others.

While all of this growth is fantastic in and of itself, the inflow of such massive capital has attracted the attention of regulators all over the globe. For example, since 2018, the United States Internal Revenue Service (IRS) has been warning investors about being diligent about declaring their crypto returns. 

In fact, in 2019, the government body issued warning letters to more than 10,000 taxpayers who had performed crypto transactions but may have failed to report their income or pay taxes owed on the same. That said, crypto accounting is easier said than done since most of the guidelines when it comes to keeping a tab on one’s digital assets are quite complex and can include a lot of physical/mental effort.

So how does crypto taxation actually work

Straight off the bat, it needs to be made clear that any dealings one may have had with cryptocurrencies in the past may be liable for taxation. As an example, say a person has 10 BTC. Of the lot, he uses 3 for buying pizzas, 4 for purchasing certain gadgets, and the rest for converting into fiat. 

For each of these separate transactions, the government expects the individual to maintain the dollar equivalent value for each tx and compute their net dollar income in relation to their total crypto holdings. On the basis of this aggregated data, a person can compute his/her net liability.

Also, to maintain one’s records in an appropriate manner, it is of utmost importance that individuals understand how exactly their tokens are taxed. Say for example, if a cryptocurrency is acquired as payment for providing someone with a service of any sort of good, the gains are taxable as ordinary income.

In another case, say if a token is acquired from a hard-fork or airdrop, it is again treated as a medium of ordinary income. Alternatively, if a cryptocurrency is purchased with the intention of it being used as an investment vehicle, then the taxation of such an asset is determined by its holding period. 

So, say a token is held for less than a year, the net receipts are viewed as regular income but still subject to certain state levy’s. On the other hand, If the holding period has exceeded twelve months, the profits accrued are treated as capital gains tax and can potentially incur an added 3.8% tax on net investment income.

Automated platforms can make crypto taxation a breeze

Even though counting for one’s digital transactions can be quite a cumbersome task, there are now many tax automation platforms that are available in the market today. For example, some white-labeled cryptocurrency dashboards — such as Atani — have been designed to automatically download and store all of an investor’s detailed balance and transaction histories from multiple leading exchanges and wallets in one place.

After collection, this data can be transferred and processed, subsequently converted into detailed reports that can be utilized by CPAs in order to accurately determine which of their client’s cryptocurrency transactions can be classified as taxable events. Furthermore, since Atani’s operational framework is totally scalable, it can be employed by small-scale investors as well as larger retailers with the same level of ease.

Thanks to the use of such applications, complex return filings, which can typically take hours to process, can be completed within a matter of minutes, thus allowing investors to not only save on a lot of time but also bypass a lot of the mental and physical stress that usually comes with doing one’s taxes manually.

Looking ahead

As the crypto market continues to attract the attention of authorities across the globe, it stands to reason that as head into a cashless, digital future, more and more businesses operating within the blockchain/crypto sector may have to start getting their digital asset accounts in order. The best way to do that is through the use of platforms that are capable of monitoring, tracking all of one’s trades in a completely automated fashion.