Posted By 
By Sia Hasan
Special to the Financial Independence Hub
Taxes are essential for the government to continue operating smoothly. Without the payment of taxes, programs such as school lunches, Social Security and health services cannot function. Even though no one really enjoys paying taxes, everyone has to fill out their tax forms. These taxes apply not only to traditional forms of currency such as wages received for a job but also to cryptocurrency. Follow these tips to make sure you are prepared to pay taxes on your cryptocurrency.
Know what you have
Log in to all of your accounts associated with cryptocurrency and find out how much money you have in each system. Then, check how much you invested into the currency, how much you have spent and how much money you have earned. You also need to know how much money each of the amounts is worth in US dollars, because that is how the Internal Revenue Service (IRS) calculates taxes in the United States. Keep in mind the fact that the amount of taxes you pay is based on the worth of your cryptocurrency when you made it, not its current worth, as long as you can prove the date of acquisition. If you do not keep track of this information, it may be stored with your account data, but you should also keep a record so you can double-check the company’s calculations. Once you have an understanding of your finances, you can begin preparation of your taxes.
Know what’s required
Just because your income is in the form of cryptocurrency does not mean that you are not responsible for taxes. The IRS has recently released new guidelines about the payment of taxes and will be holding people accountable for not reporting cryptocurrency in the past. To avoid fines or even imprisonment for tax fraud, you need to understand the tax laws and how they apply specifically to the kinds of cryptocurrency you use.
Part of these guidelines includes the distinction between different ways you can acquire cryptocurrency. Depending on where the currency comes from, you have to pay different levels of taxes on it. For example, if you mine your cryptocurrency, you will pay different taxes than if someone gives it to you in return for a job.
Know how to file
You will send in your paperwork for cryptocurrency taxes along with the rest of your forms. You may have to fill out extra forms, though, and a standard accountant may be unfamiliar with filing cryptocurrency. Filing taxes for cryptocurrency may require specialized online software or an accountant who is trained to deal with this kind of tax. When in doubt, consult the IRS’s website for the latest information, regulations and hints. The IRS also has local offices that you can contact for help.
Know how to prepare
If this is your first year working with cryptocurrency, you will probably be very stressed out about tax season. Once your taxes are filed and you know that you’ve done them correctly, you can relax. However, remember this feeling of confusion and stress so that you prepare better for next year’s taxes. Note any resources that you found helpful and make a folder of them so that when you need help next year, you know how to access them. You should also note any that offered bad advice. Monitor the news for updates in the IRS’s policy so that you are not caught by surprise in the days leading up to the due date. Finally, keep careful records of every cryptocurrency transaction either in a secure document or in a notebook. Include proof of the day that the transaction occurred, such as screenshots or emails, so that you can prove the value in US dollars on the day of receipt.
Taxes are confusing and can take up a lot of your time. Complete the process methodically so you do not make any mistakes, and set yourself up for a successful, stress-free tax season in the future.
Sia Hasan is a tech entrepreneur by day, and a freelance writer by night. Her passion lies in business technology, efficient and sleek programming, and customer relationship management. When she doesn’t have her nose pressed against her computer screen, you can find her spending time with the loves of her life, her two dogs, Pixel and Vector.
