Why Cryptocurrencies Can Complicate Your Taxes

Law Blog

If you are a heavy crypto user, you might dread filing your taxes. Crypto investments can make taxes substantially more challenging because your transactions are likely to be scattered across a broad range of platforms. It's important to keep track of each crypto transaction and to also work with a crypto tax attorney.

How Cryptocurrencies are Taxed

Cryptocurrencies are classified as property. Therefore, a cryptocurrency will only affect your taxes if you are buying or selling it. If you simply hold cryptocurrency, you won't have to pay taxes until it's you no longer want to hold onto it. This is convenient because cryptocurrencies go up and down in value.

However, if you receive a cryptocurrency as a form of income, such as if someone chooses to pay you using a cryptocurrency, you must report it as income.

Include Your Entire Crypto History

You might be surprised to find out that you will need to include your entire history of crypto investments when doing your taxes. This is because you must include the data related to the initial purchase of a crypto asset before you and your tax attorney can properly do your taxes.

It's important to keep track of all the exchanges you have used when trading cryptocurrencies. You must include the data for all of these exchanges when paying taxes.

Be Careful When Performing Calculations

The calculations that you are required to do when you have cryptocurrency investments can be much higher than with other types of investments. If you make any mistakes when you are performing calculations, you might end up being forced to pay more than you would otherwise. Therefore, it's best to have your crypto taxes handled by a legal professional.

Work with a Crypto Tax Attorney

If you are working with a crypto tax attorney, you may be able to avoid several consequences. You will be less likely to be forced to pay expensive fines and you will also be less likely to face audits. Therefore, it's always a good idea to work closely with an experienced crypto tax attorney.

However, if you do make mistakes with your taxes and are potentially facing penalties, an attorney will be able to help you. For example, if you end up owing more taxes than you can afford to pay, your attorney might be able to work out an agreement that will allow you to more easily pay back the taxes you owe. 


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