July 15, the upcoming tax filing deadline, is fast approaching. Those who own cryptocurrency through Coinbase, Bitcoin or another platform may have questions about reporting requirements. Two tips that will help to reduce the risk of issues with the Internal Revenue Service (IRS) regarding this asset include taking time to organize relevant records and get a basic understanding of the tax forms that go with cryptocurrency.
First: Get records in order.
In general, taxpayers are wise to keep accurate records, but this is particularly true when their filings may include an asset that is likely to result in questions, like Bitcoin or other forms of digital currency. Examples of relevant paperwork include records of aexchanges, wallets and transaction history as well as basic information about cryptocurrency platform accounts.
Second: Know your forms.
Cryptocurrency platforms may send a tax form, like a 1099-K, to account holders. It is important to know how these forms work as they are often misleading. The 1099-K, for example, reports gross proceeds when what the taxpayer really needs is information about gains and losses.
In contrast, those who use a stockbroker may receive a 1099-B. This tax form will provide more detailed information about the investment, including the resulting gain and loss information. Taxpayers who inadvertently use the information on the 1099-K instead of the 1099-B could inadvertently end up paying additional and unnecessary taxes.
Also, one bonus tip, taxpayers can benefit from Bitcoin losses. A loss in the value of cryptocurrency can result in a tax deduction from your taxable income.