One of the hottest topics on the internet for the last couple of years, cryptocurrency, is all the rage. But managing your cryptocurrency investments can be surprisingly tricky. It’s still in its early days, and as a result, the cryptocurrency scene can feel more like the wild west. Despite the chaos, cryptocurrencies have been streamlined a bit through strict tax laws and obligations. Here’s all you need to know about cryptocurrencies to manage your cryptocurrency investments if you decide to jump into the game.
What is Crypto?
Despite being one of the most popular buzzwords in internet forums and social media in the past few years, only a handful of people truly understand what cryptocurrency is and how they work. A shocking number of people who put down their hard-earned money don’t actually know what crypto is or how it works.
In simple terms, a cryptocurrency is a digital asset developed as a means of exchange for online transactions. There are thousands of crypto brands out there, but they function in the same technical way. Not all of them are dependable. A few reliable brands are Bitcoin, Ethereum, and Litecoin.
The main reason why the cryptocurrency is so popular is investors believe in the philosophy behind crypto and see it as a good return on their investment. Despite being a decentralized digital exchange medium, it has proven itself to be popular and currently is valued against other currencies and financial instruments. The decentralized nature of cryptocurrency is why banks and other national and international financial organizations have debated it so much.
Cryptocurrency is Taxable
Despite being decentralized, you might think it’s above the law and the IRS, but it’s not. Not only the IRS, but tax divisions worldwide have streamlined cryptocurrency through national tax laws. Meaning that you must report every penny you make or lose through with cryptocurrency and pay taxes. To report your cryptocurrency taxes, you usually need to use Form 8949, but you can also use Form 1099-B, Form 1099-K, and tax statements. To file the taxes properly, you need to record the following:
- Date Acquired/Purchased
- Date Sold
- Gain/Loss
- Cost of Trade
- Net Gain/Loss
- It should be noted that you need to register every transaction, whether profit or loss. You must report the valuation of your loss of earnings in dollars as of recent market value. Since the taxation laws for cryptocurrency are relatively new, much of it might be hazy for you. This is why it worthwhile to talk with a lawyer or financial advisor to clear things up for you, aside from doing deep research. There are a couple of instances where cryptocurrency isn’t taxable. They are:
- Gifting cryptocurrency
- Transferring cryptocurrency
- Buying cryptocurrency
Mind Your Keys and Wallets
In real life, when you leave the house, you always want to keep track of your key and wallet, right?
The same philosophy applies to safeguard and to the recording cryptocurrency transactions as well. There is actually little to know difference considering you need to pay taxes on crypto earnings. You’ll want to keep track of your public key, private key, and various types of wallets (paper, hardware, and cold). There are multiple ways to keep track of your crypto transactions- through paper and printed records, memory devices such as pen-drives and hard drives, online recording services, and more. Understanding all of these terms and what they mean can save you a lot of heartache and money.
Here are some quick and easy tips to keep in mind while keeping track of your cryptocurrency transactions:
- Download CSV records for each financial transaction. Most websites and trading platforms offer this feature, which sometimes even veteran traders ignore. These files can be stored in your device hard-drive, and you can also print if necessary.
- Choose the right exchanges vital if you intend to trade in cryptocurrency. Despite its massive appeal, the fact remains that trading in cryptocurrency is highly risky, and you need a dependable exchange that charges lower fees and provide higher standards of service.
- Use SAAS as an alternative to tracking your cryptocurrency transactions. This software runs in the background to track down and report the smallest details.
To Sum it Up
Managing your cryptocurrency investments is just as important as knowing how to invest in them. Provided you’ve done your research properly and have taken professional council, you should be able to pull it off without any problems. Not reporting your crypto transactions properly can land you in legal complications, so don’t overlook it in the long run.