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HOW TO PAY CRYPTOCURRENCIES TAXES FAST WITH CRYPTO TAX SOFTWARE?

Do you know how cryptocurrency taxes work? If you don’t, then this could cost you a lot of time. From trading fees to your yearly tax return, the lack of knowledge and understanding could lead to heavy penalties from the IRS. Nearly half of Americans state that they would invest in cryptocurrency, so it is more important than ever for people to understand the basics of taxes and how investing in cryptocurrency can impact their lives. Modern-day crypto tax calculator helps calculate all your crypto transactions in minutes—so there is no need to rush to a tax consultant.

What Is Cryptocurrency Tax Rate?

The Cryptocurrency Tax Rate is a barometer measuring cryptocurrency’s current and future tax landscape in the U.S. Based on qualitative and quantitative research, it is intended to help industry insiders, businesses, and investors understand the tax rate implications for crypto assets. These apply to purchases or sales of the virtual currency, such as transactions completed on a virtual market (like with Bitcoin) or sales of Bitcoin Mining, Ethereum, or other alternative options like Shiba Inu Dogecoin. There are various slabs of tax rates for single filers, married couples, and heads of the household for short-term and long-term capital gains.

How does the Cryptocurrency Tax calculator work?

Cryptocurrency trading is happening 24 hrs a day online, so your crypto tax calculations need to keep up. Cryptocurrency Tax Calculator provides a complete tax reporting solution for cryptocurrency capital gains, losses, and income. The crypto tax calculator can break down your transaction history into realized and unrealized gains from individual cryptocurrency trades by connecting your crypto exchange accounts to any service provider. The software then handles the hard part – calculating your cost basis, reporting short-term and long-term capital gains, and calculating the correct holding periods for each asset. In the end, you get a downloadable IRS-compliant 8949 report that you can include with your 1040 Schedule D when filing your taxes.

Various accounting methods in crypto taxes

The IRS has outlined three methods for framing crypto taxes every year.

  1. FIFO (First In And First Out)-In this method, the previously purchased coins are acquired first and sold first.
  2. LIFO (Last in and first out) – When the assets are purchased last and sold first, it is termed the LIFO method.
  3. HIFO(Highest In And First Out) –When you are selling your coins on the highest cost basis, then you are entitled to HIFO tax.

How to calculate taxes for cryptocurrency?

The IRS classifies cryptocurrencies as assets comparable to stocks, not fiat currencies (like Euros, U.S. dollars, or yen). You need to inform the IRS of all your gains and losses in crypto trading.

The difference between crypto buying prices and selling prices is termed capital gains. When capital gains are calculated, the cost basis points should be subtracted (the price you purchased your crypto).

What are long-term and short-term gains?

It is a common misconception that you do not pay taxes in the cryptocurrency world. That is as wrong as you can get. You are legally required to report all cryptocurrency earnings just like any other income.

  1. When you hold your crypto assets for less than a year, you are entitled to tax payments just as your standard income tax rate, which is generally higher. (Termed as short-term capital gains).
  2. Long-term capital gains resulted from assets owned for longer than 12 months during the tax year and sold for more than the original investment. These gains receive a lower tax rate than other income, which is meant to encourage long-term investment.

The necessity of a Cryptocurrency Tax Calculator

Are you one of the millions of cryptocurrency traders subject to U.S. taxes? Then you need efficient tax software to keep track of your trading history, calculate your capital gains and losses, determine which tax lot relief method is most beneficial, and stay IRS compliant in case of an audit.

The outcome of a cryptocurrency transaction is taxed. If a capital gain is made, it is taxed as income at the individual’s tax rate. Tracking each transaction is laborious, and tracking cost basis using the first-in, first-out method is not optimal. An algorithm to automatically calculate profit and loss can help you save time and money and get ahead of taxes. Flyfin brings an easy-to-use cryptocurrency tax calculator for everyday crypto users. It helps you quickly calculate tax liability from cryptocurrency investments and purchases. It includes integrated historical price data from major exchanges, so you can calculate your capital gains and losses in the run. It is a unique tool that helps you aggregate, organize and prepare your cryptocurrency transactions to make them ready to file.

Is bitcoin mining taxable for self-employment taxes?

Because IRS considers cryptocurrency as property, normal tax implications applicable for properties in the U.S. are also applicable to cryptos. The IRS and Social Security Administration consider digital miners independent contractors rather than employees, which means they’re responsible for all employment tax payments. If a person is engaged in the trade or business of crypto mining, then the net income or net loss from their crypto-mining activity is considered self-employment income. After deducting all ordinary and necessary expenses paid or incurred in connection with their crypto-mining activity, all remaining gross income (profit) from their crypto-mining activity should be reported on Form number 1040 (Schedule C), profit or loss from business (SP-sole proprietorship) by the taxpayers. After determining the net profit, self-employment taxes are calculated using Schedule S.E., Self-Employment Tax.

Penalties for not paying your crypto taxes in time

It will be possible for a taxpayer who does not correctly report the earnings from cryptocurrency dealings to be audited for those dealings and, if called for, could be subject to penalties and fines. Tax evaders or people who willfully neglect the tax payment method to avoid tax compliance come under the purview of the Internal revenue service; the defaulter taxpayer can be fined up or even imprisoned for upwards to five years.

Summary – U.S. taxpayers are required to report capital gains upon the disposition of cryptocurrency. Self-employed taxpayers whose business involves mining cryptocurrencies are subject to income tax, self-employment tax, and various other taxes. If you are involved in mining cryptocurrencies, then you can use Flyfin crypto tax calculator will make your crypto filing process much easier.

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