If you’re not well-versed in cryptocurrency or you are hoping to learn more about the subject, you’re likely curious about taxes. As taxes on traditional securities are already complicated, you can imagine that reporting cryptocurrency taxes is that much more confusing.

By partnering with the right experts and understanding the different crypto taxes forms that you should be filling out, successfully navigating cryptocurrency taxes is within reach. 

There are five fundamental steps to follow when reporting cryptocurrency on your taxes:

  • Determine the gains and losses on your crypto transactions
  • Fill out crypto tax Form 8949
  • Report the totals from Form 8949 on Form Schedule D
  • Report ordinary crypto taxable income on the 1040 Schedule 1 (unless you’re self-employed, then use Schedule C)
  • Fill out the remainder of your tax return, file, and pay taxes

The above applies to most situations but yours may be unique! Even though it might seem straightforward and timely, don’t be fooled; each step can take longer than you might anticipate. This is especially true if you have a large volume of crypto transactions or you aren’t taking the time to accurately keep records of your transactions.

Understanding the Differences

Rather than treating cryptocurrency as traditional currency, the IRS classifies cryptocurrency as property when it comes to tax purposes. This means that it’s the responsibility of the taxpayer to report any cryptocurrency that is received, sold, sent, exchanged, or acquired. 

For example, if you have Bitcoin or Ethereum that you’re selling for a profit, the capital gains tax rules apply. If that cryptocurrency value increases, you might be required to pay capital gains taxes depending on how long you’ve held it.

In addition, the IRS has implemented a wash sale rule that prevents taxpayers from deducting losses relating to a wash sale. This prevents taxpayers from claiming artificial losses by trading in and out of a stock to offset any income. However, because the IRS classifies cryptocurrency as property, the wash sale rules do not apply.

Forms 8949 and 1099-B

Form 8949 is used to report crypto capital gains and losses. Any crypto sales during the tax year is reported on this form. Other non-crypto investments need to be reported on separate Form 8949s when taxes are filed. 

Unlike cryptocurrency, traditional investments use a different tax form. Instead they use form 1099-B, the standard form for stocks, bonds, derivatives or other securities that are traded through a broker. This form helps you deal with capital gains and losses on your tax return. 

Need More Information & Guidance?

Understanding the differences and nuances of filing your cryptocurrency taxes on your own can be daunting. Even if you’re experienced, we highly recommend reaching out to a professional on our team for guidance. We have seasoned crypto tax accountants who can help you understand the process and ensure that your filings are timely and accurate.

To learn more about how we can assist you at Founder’s CPA, take advantage of our free consultations today.

Curt Mastio
Post by Curt Mastio
November 22, 2023
Curt Mastio started Founder’s CPA in 2017 and currently serves as the Managing Partner of the firm. After obtaining both his Bachelor’s and Master’s degrees in accounting from the University of Illinois in Urbana-Champaign Curt started his career in Big Four public accounting. Shortly thereafter Curt served as the Chief Financial Officer of Storage Squad began his stint as an Adjunct Instructor at Northwestern University’s Farley Center for Entrepreneurship and has been teaching Accounting & Finance to undergraduate students for 6+ years. In his current role Curt oversees strategy, operations, and business development at Founder’s CPA. Further, Curt has experience working directly with 200+ startups and small businesses providing accounting, tax, and outsourced CFO services. His industry expertise lies in the SaaS, Blockchain, Marketplace, and Fintech industries. He has served as a key advisor working directly with startups that range from pre-revenue to companies generating over $30 million dollars a year in revenue. Lastly, he serves a key role working directly with the firm’s clients that have collectively raised over $200 million in venture capital funding to date. Curt is also an active advisor, mentor, and investor in the startup ecosystem. He has facilitated numerous workshops, webinars, and presentations to incubators and other startup-centric organizations. He is also an active mentor for Techstars in both Chicago and Iowa. Outside of his daily professional duties Curt is actively involved with Beat the Streets Chicago and was a founding member of its Young Professionals Board. His efforts in both leadership and community involvement were recognized when he was awarded the Illinois CPA Society’s Outstanding Young Professional Leadership Award in 2020. He was also a panelist at their annual conference in 2022 where he spoke about his experiences starting and operating a public accounting firm. He maintains an active Certified Public Accountant designation that he obtained in 2014. Outside of work, Curt can be found spending time with his friends & family including his dog Rufus. His hobbies include golf, boating, cooking, reading, and attending sporting events & concerts.