A lot of people have been investing in cryptocurrencies in recent years. What started out as a fad has quickly become one of the preferred ways for many people to grow their investments and make money. While there are many upsides to cryptocurrency investing, there can also be some downsides that come with it. One of those downsides is that you will have to manage your crypto tax.
People just starting out with cryptocurrency might not even know how they need to file taxes on their earnings, but it’s important for them to take care of this so they know how much money they’ve actually made on the investments and from what sources.
If you want to skip the platform, you can also do this by simply moving your crypto assets into another wallet. This is a commonly overlooked way of managing your taxes in the crypto world and it doesn’t require any additional work or input.
How To Calculate Your Crypto Taxes?
There are different methods by which you can calculate your crypto tax. I have listed a few methods by which you can calculate your crypto tax.
1. Determine Your Bitcoin Total Value
The first step is to determine your total value of bitcoin in your possession. To do this, you’ll need:
List all the crypto addresses that you have for each wallet in which you hold any holding. Actual address information is not necessary, just a list of the addresses that you have.
Add up the total value of all of your bitcoins at the time you owned them. Don’t forget to include any asset you may have lost, as well as any asset that you may have bought but then sold as exchange crypto tax matters a lot while calculating crypto tax.
If you are using a company to store your bitcoins for you, then you will be able to get this information from them using their internal reports.
2. Report Your Bitcoin Gains and Losses
In the taxation world, daily gains and losses are calculated together and added up at the end of the year to determine which categories they fall under in terms of your overall net profit or loss. This total amount is then used to calculate how much you owe in taxes for the year. To do this, you will first need to:
Find the dates that you owned bitcoin. This means finding the dates when bitcoin was added to or removed from each address that you own. If you don’t know what your ownership history looks like, then it may be better to use a third party service like coinbase to help manage your record-keeping.
Determine if during those time frames there were any losses that have been incurred by either buying more bitcoins than you sold or by selling more bitcoins than you bought. This can happen with futures trading as well as just buying and selling on an exchange.
Use A Crypto Tax Software
If you feel the above method is hectic to you then, you can try using a completely automatic method. A crypto trading tax software will do all your work very efficiently. You can just download and keep a record of all taxation. If you are looking for an efficient crypto tax then, you can opt for Binocs. Binocs is a very advanced tax software which provides you with a complete taxation solution.