If Crypto is a celebrity, it can describe its journey as an astonishing rise from obscurity to cult classics and mainstream appeal, and even say it is at risk of being overexposed.
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Members of the First Family launched their own meme coins earlier this year, apparently mixing the reactions. Nowadays, everyone is paying attention to cryptocurrencies, including the Internal Revenue Service.
Tax agencies around the world are increasing their ability to track crypto transactions, and it’s happening at home too. Crypto investors need to understand the tax liability of their favorite digital assets, as the government certainly does.
Avoiding scrutiny and maintaining cryptographic activity is not easy. Let’s take a look at the three tax mistakes that many crypto investors make. This can lead to audits, penalties and too many other things.
Even if you keep Kosher with the IRS, the state’s tax revenues are also looking for words. Federal taxes are not your sole responsibility. Even states and even some local jurisdictions have their own rules regarding cryptocurrency taxation, which can vary significantly.
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Even those with a bunch of serious student loan debt and degrees may struggle to calculate capital gains and losses in crypto trading. Harding Cat’s cliche seems appropriate considering the frequency of transactions made by serious investors. Make sure you double check the date and decimal locations as the mistakes here can really be costly.
Crypto investors often make mistakes when determining the cost-based or original price paid for an asset. That number is what is used to calculate your profit or loss, and if it is not accurate, you will have a bad time. Underreporting and you are underpaid. Overreport, and you pay more than you should. I won’t select either.
Common cost-based errors are:
Dates to use incorrect acquisition dates: Confusing the transfer date with the original purchase date may result in a false cost base.
Inappropriate lot accounting: You might think that all tax cryptocurrencies exist in one big mountain. it’s not. You need to track the specific units you have sold. For example, Bitcoin purchased last year, in contrast to Bitcoin purchased 10 years ago.
No transaction fees included: For tax purposes, purchase or sales fees must be included on the cost basis.
Inappropriate accounting for forks and airdrops: Don’t forget to track the cost base after a hard fork or airdrop.
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