Last Updated on March 17, 2024 by Ben
Are you paying taxes on your Bitcoin transactions? If so, how do you file them with Turbotax? In this article, we will proceed over some of the basics of filing cryptocurrency taxes.
We’ll start by knowing what Turbotax is, and then we’ll go over how to determine if and when you need to report your crypto profits as taxable income.
What is Turbotax
TurboTax is like an interview in a sense that they ask you questions about your life and if you are married or have kids, and then they also ask which tax forms to fill in for you. When you answer, they know which deductions and credits to look for and what to ask next. If you are demented about how to answer a question, they can help.
The result: You will be guided as you do your taxes, and they will help you when you need it. They find every deduction that applies to your situation. You deserve to keep every dollar that you work hard for and they will help you with that.
How to Prepare and Report Bitcoin Tax Filing
When you sell Bitcoin, the IRS taxes it as an investment. This means that it is subject to the same tax rates for capital gains and losses that other financial assets are when you sell them.
Get Your Information Together
Information gathering Log in to your exchanges, wallets, and other platforms to see if you have any tax forms. These are Form 1099-K and Form 1099-B. Find a Form 1099-K and/or a Form 1099-B with an incomplete cost basis. Check that you also downloaded the transaction history report if you do not see any kind of tax form.
If you find a Form 1099-B with cost-based information, you do not need to go through the next step. You can go directly to tax filing.Knowing the following information for each transaction is important.
- The amount of money you spent to buy one cryptocurrency.
- The date you bought (or got) them
- The date you sold the coins
- The amount of money you got when you sold your cryptocurrency.
When you sell stocks, your broker will send you a Form 1099-B with the information that is needed to report on your tax return. But do not expect the same service from a cryptocurrency exchange. Most crypto exchanges only send 1099 forms to customers with gross payments over $20,000 or more than 200 cryptocurrency transactions during the year.
However, you can see reports that show the transactions of your cryptocurrency account. You can see all buys, sells, sends, and receipts of cryptocurrency from the account. If you trade all of your cryptos on one exchange, it will be easy to figure out how much you need to pay in taxes. If you have your cryptocurrencies scattered on different exchanges, you need to download reports for each.
Calculate your Bitcoin Gains and Losses
Once you own all the information about your cryptocurrency, you need to tell whether it helps or hurts your money. To do this, you’ll need to think about which way you will value the cryptocurrencies you sell.
You have two options for filing your bitcoin taxes:
- First-in-first-out (FIFO). The coins you first buy are the first to be sold.
- Specific identification. You choose the coins you want to dispose of in each transaction.
The way you choose to do your taxes can greatly affect the amount of taxes you have to pay.
Say you buy 100 coins for $1 each on January 1, 2021. And another 100 coins for $20 each on June 1, 2021. On February 1 of the following year, you sell 40 coins for $15 each.
The FIFO method is a way to see how much money you made. You can do it by coins and then by the date they were made. This time we used the coins from 2021 to figure out how much money we made. We sold 40 of them for $15 each, which is $600 (or 600 coins).
You may have a short-term loss by using the specific identification method. You can decide that the four coins you sold in February of 2022 came from the lot purchased in June of 2021. That would make your short-term loss $200. That is 40 coins at $15 each minus 40 coins at $20 each, or $600.
Some cryptocurrency exchanges provide a report that tells how your money is doing, but the report only does this for one kind of calculation. You might not be able to carry out another type of calculation on the exchange.
Taxes on Long-Term Capital Gains
After the progress of the Tax Cuts and Jobs Act, long-term capital gains stopped being taxed at a percentage close to your income tax. Before 2018, long-term capital gains were taxed at a percentage close to your income tax. In TCJA, long-term capital gains tax had unique brackets. These numbers changed from year to year.
Taxes on Short-Term Capital Gains
Short-term capital gains are taxed as if they were ordinary income. If you had investments that you sold which you only held for less than a year, then the money from those investments is added to your taxable income for that year. For example, if you have $80,000 in income from your salary and $10,000 from investments. Then your total taxable income is $90,000.
When you have a short-term capital gain, you pay the same amount of taxes as if it were ordinary income.
Claim Your Losses
If you sell a stock, there are rules about how much money you can make. You might not be able to earn more than the amount of money that you lost. And if you have losses from selling stocks, then those losses can be used to reduce your taxes on other income types. The rules also have provisions for carrying forward losses.
Report your Bitcoin Transactions
Capital gain transactions are reported on IRS Form 8949. The form is divided into two sections:
Cryptocurrencies that are held for less than one year go in the short-term section. For taxes, short-term gains are taxed at the same rates as ordinary income and have a top rate of 37%.
Long-term investments are things like stocks. If you keep your investment for at least a year, then you qualify for the lower long-term capital earn rates, which max out at 20%.
Report your totals from Form 8949. If you also sold other investments that are not in Bitcoin, report those on a separate form. Then add up your totals and put them on IRS Schedule D.
Turbotax Importing Transactions
If you possess a brokerage account, you can either wait for TurboTax to prompt you to import your statements (e.g., Form 1099-B or Form 1099-DIV), or you can go directly to the option by searching for “import” in the search box and then selecting “Jump to Import.”
Bitcoin Tax Reporting within TurboTax: Step-by-Step Process
TurboTax has partnered with another company to make it easier to file taxes for people who own cryptocurrencies. You can now easily import your crypto taxes into TurboTax to have them help you file your taxes.
If you still need to acquire your crypto tax forms, you can use our cryptocurrency tax software. It will calculate your taxes and create the forms for you.
Instructions for Importing Crypto into TurboTax
Here is how to import your cryptocurrency Form 8949 into the web edition of TokenTax. If you are looking for instructions on importing your cryptocurrency Form 8949 into the CD, Download, Desktop version of TurboTax, go past these web instructions.
- First, you need to do your taxes on TokenTax.
- Next, go to your TurboTax Documents page and create a TurboTax CSV.
- Start your taxes with TurboTax. In the TurboTax introduction process, select “I sold or traded Cryptocurrency” on the page titled “Let’s get an idea of your financial picture.”
- Once you get to your Wages and Income screen, click on Start next to cryptocurrency. If you did not already tell the computer that you sold or traded cryptocurrency, add it by clicking “Add more income” on this screen and select cryptocurrency.
- We want to know if you sold or traded cryptocurrency in the last tax year. If you did, click yes.
- Click the TokenTax logo on the next screen.
- You will now perceive a page where you can upload your tax return.
Conclusion
The bitcoin community is not well understood by many people, and it faces some challenges in terms of regulation, but it’s still pretty apparent that cryptocurrency keeps on gaining popularity.
Recent advice from the IRS makes it so that when you trade cryptocurrencies, they are treated the same as if you were to trade stocks. It may seem like reporting your gains and losses is hard to do, but traders are asked to report their gains or losses accurately.
People have a hard time finding the historical price of the cryptocurrency. But now, there are tools to help them find this information. As cryptocurrencies become more popular, more tools will likely be available for people who trade them.