The EOFY for US taxpayers is the 31st of December 2022. Here's what you need to know and do to prep your crypto taxes for the IRS.
Crypto investors who fail to file their taxes with the IRS by the 18th of April 2023 face steep penalties of up to 25% of their tax bill, a maximum of 3 years in prison and a $250,000 fine.
So what’s the best way to avoid an unwelcome IRS audit?
Prep your crypto taxes. Follow these steps:
Let's dive in.
The US financial year runs from the 1st of January to the 31st of December every year. You need to report your crypto transactions for the 2022 financial year by the 18th of April 2023. This is usually the 15th each year, but has been extended in light of the holiday weekend.
It’s important to understand that if you want to optimize your tax position and pay less tax, you need to do this before the end of the financial year, that the 31st of December 2022. Any transactions you make after this point won’t count towards your 2022 taxes but the 2023 tax return instead.
You'll find more advice on how to pay less crypto tax in this guide, but here are a few tips to prep your crypto taxes before the EOFY:
Crypto isn't actually seen as a currency by the IRS. Instead, it's seen as an asset - similar to a stock or a rental property. This makes your crypto subject to one of two possible taxes - Capital Gains Tax or Income Tax.
You'll pay Capital Gains Tax on any profit you make from 'disposing' of an asset.
Meanwhile, you'll pay Income Tax when you're earning crypto from the likes of staking, liquidity mining, airdrops and so on.
You can find out more about how crypto is taxed in our US Crypto Tax Guide.
The IRS wants to know anytime you've made a taxable crypto transaction - whether you made a profit or a loss is irrelevant.
This is why it's vital that crypto investors keep accurate records of all their crypto transactions - for as long as they've been trading ideally.
As a minimum, you'll need the following information about each of your crypto transactions:
Of course, for crypto investors with a lot of transactions - keeping these records in itself is a challenge. But a crypto portfolio tracker and tax software can help.
There's two ways you can go about getting the information you need to complete your IRS tax returns.
First, you can export files of transactions from all the crypto exchanges and wallets you use. These could be in the form of statements, transaction history, and reports, etc.
You can then manually create one 'master' spreadsheet of all your crypto transactions.
This is quite a bit of work for investors who use multiple exchanges and have hundreds of transactions. As well as this, many exchanges don't offer a complete transaction data file. So you'll often have to combine multiple files from one exchange together to give an accurate reflection of your complete transaction history.
The second way to get the information you need is to use crypto tax software like Koinly. Koinly supports all major crypto exchanges, wallets and blockchains, with step by step instructions on how to connect each:
As a leading crypto tax company - it's our job to know the IRS crypto tax rules. We've got a variety of guides for US crypto investors to help you understand your crypto taxes better, including:
Our blog is also full of helpful advice on different crypto transactions and how they're taxed.
You need to declare all your crypto activity from January 1st 2022 to 31st December 2022 by the 18th of April 2023.
You declare your crypto activity in your Individual Income Tax Return (Form 1040). There are several other forms you'll need to do this. You can see our full how to file guide, but in brief: