Are looking for a comprehensive guide about How To Fill Out Form 8949 For Cryptocurrency and are you having trouble reporting cryptocurrency taxes? Now, noting the disposals on the 8949 is essential for all investors. Whether you are a beginner or an expert, filling out the form can take a lot of time and effort.
Mainly when you have used different wallets and exchanges throughout the year, but don’t worry, you are not the only one in all this, as it is challenging for cryptocurrency investors to find tax professionals.
The following guide contains all the necessary information about the 8949 form before filing your taxes. Additionally, there is a step-by-step guide on How To Fill Out Form 8949 For Cryptocurrency
How is Cryptocurrency Taxed?
Before we know How To Fill Out Form 8949 For Cryptocurrency, discussing the basics of cryptocurrency taxes is essential. During the investment of Cryptocurrency, all the investors face both gains and losses. Especially this year when there was an explosive rise and fall of Cryptocurrency.
In the considered property of Cryptocurrency, the main subjects are capital gains and income tax.
Capital gains tax
If you dispose of Cryptocurrency, you will experience a significant gain or loss, depending on the price. As you initially receive it and you know the changes.
As a receiver of Cryptocurrency, you can easily recognize the income which depends on the crypto market price you are receiving.
How Do You Respond To A 1099 Form Instead Of An 8949?
If you have been trading Cryptocurrency for the past few years, it is possible to receive a 1099 form. These forms are provided by more than one exchange. In this case, there is no visible guidance on which type of form cryptocurrency exchanges should provide to the users.
Therefore, various exchangers of Cryptocurrency provide different versions of the 1099 form, even though some don’t offer any tax form.
That’s why an investor needs to know whether they have a cryptocurrency transaction that is taxable or not. If it is taxable, you should fill out the 8949 form; if not, you will receive the 1099 form.
Additionally, if you have any transaction of Cryptocurrency in or out of the exchange, double-check the 1099 form. Sometimes, these forms contain incomplete information, so never wholly rely on the accuracy of your tax reports.
How To Fill Out Form 8949 For Cryptocurrency: Guide
It doesn’t matter if you are a beginner or even an expert. It is always challenging to fill 8949 form. But you don’t have to worry as we are here with complete instructions. You must follow six simple steps if you want to fill out form 8949 accurately. The steps are given below:
1. Take all the Cryptocurrency into account
The first thing you have to do before filling the form 8949 is to take into account all the cryptocurrency disposals throughout the tax year. Always remember to report each dumping in your wallet and exchanges and mention them on the form. Removals will include selling, trading, or using Cryptocurrency to buy services or goods.
2. Collecting information to put on form 8949
When you start filling the form 8949, you will need various information about your cryptocurrency disposals. The information you will need is:
- Complete information about the property you sold using Cryptocurrency.
- The original date on which the property was acquired.
- The date on which the property was sold.
- Minus the market value of disposal from the related fees.
- The cost bases to buy the property.
- What did you gain or lose?
If you are facing any problems finding the information about How To Fill Out Form 8949 For Cryptocurrency, then from this article you can take help and fill out the information.
3. Dividing the disposals into short and long-term disposals
It’s time to divide the disposals into two sections, short-term and long-term. Putting each of your dispositions into the correct category is very important. Make sure you will put those disposals that you are holding for less than 12 months in the short-term section. And same is that if you have assets of removal keeping for more than 12 months; put those in the long-term cells.
4. Make sure to select the correct option.
There will be three checkboxes in both short-term and long-term sections. You have to mark one of the options. Here are the options you will see on the form:
- Transactions reported on Form 1099-B showing the disposals which were said to IRS.
- Transactions reported on Form 1099-B showing the disposals were not reported to the IRS.
- Transactions not reported on the form 1099-B.
5. Report the disposals on the 8949 form
The second last step is to record the cryptocurrency disposals on form 8949. Put every information accurately.
6. Don’t forget to report gains or losses on Schedule D.
Once you finished reporting all your long-term and short-term disposals on the 8949 form. Never forget to inform the net gain and loss on Schedule D. If you have any capital loss you think you can carry forward, report it.
1: what happens if you forget to report Cryptocurrency on your taxes?
Forgetting to report Cryptocurrency taxes will be considered tax evasion. In this case, you will have to pay a penalty of $100,000 and 5 years imprisonment.
2: do I still have to pay taxes if I lose money?
If you are losing money, it will be beneficial to report your capital loss. It will help you to gain $3000.
You must report and fill out form 8949, no matter your loss or gain. Yes, it is a bit difficult, but the above guide will help you fill out the form accurately.
Different cryptocurrency exchangers provide various forms, so if you get a 1099 form, double-check the transaction information, as sometimes it is incomplete and causes trouble.
Don’t forget to divide Cryptocurrency taxed into long-term and short-term sections and select the correct option.