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The IRS and Cryptocurrency
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The IRS has, over the last several months, sent over 10,000 action and warning letters to individuals suspected to be cryptocurrency traders and holders that may have misreported digital assets on their tax returns. Cryptocurrency traders throughout the U.S. have received letters such as the 6174-A for cryptocurrency, CP2000, and 6173. The IRS is making it clear that cryptocurrency has to be reported on tax returns.
The U.S. tax agency treats cryptocurrency as property when it comes to taxes. It means that cryptocurrency traders or holders are required to report crypto capital gains as well as losses on taxes. To properly report such transactions, you are required to report the original cost basis, the fair market value of the crypto asset in USD at the time of the transaction, as well as the amount of loss or gain incurred for each cryptocurrency transaction. It is a task that’s virtually impossible to do manually since the historical USD price for all crypto assets isn’t always readily available.
How to Enter Cryptocurrency on TurboTax Deluxe
Turbotax does offer options for cryptocurrency traders to file accurate returns , lets explore how you can use Turbotax to capture your cryptocurrency activities.
The following is a breakdown of the steps involved in importing your cryptocurrency:
- Step 1: Complete the calculation of your crypto taxes.
- Step 2: Go to the Documents page and create a TurboTax CSV.
- Step 3: Start your tax return in TurboTax. Make sure that you select “I sold or traded Cryptocurrency” on the page titled “Let’s get an idea of your financial picture” in the TurboTax introduction process.
- Step 4: When you get to the Wages and Income screen, click Start next to Cryptocurrency. If you hadn’t previously selected that you traded or sold cryptocurrency, you should click “Add more income” on this screen and select cryptocurrency to add it.
- Step 5: You will then be asked whether you traded or sold cryptocurrency in 2021. You should click Yes.
- Step 6: You will be on a screen where you can upload a file. If the file is rejected since it is beyond the 2251 transaction limit set by TurboTax, you should create an aggregated report instead. You will have the option to create your aggregated report once you go to create the form.
- Step 7: You have completed the process.
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How to Calculate Cryptocurrency Losses with TurboTax
TurboTax is a program for filing taxes that covers all possible scenarios, which is why it will ask you to select a variety of scenarios that would be applicable to you. To calculate your capital gains or losses and export them in CSV format and import it on your TurboTax, ensure that you select “I sold or traded Cryptocurrency”. It works perfectly with the TurboTax online platform even if your taxable transactions are over 250. Cryptocurrency trading is a taxable and isn’t the easiest task, but is one you have to do to meet your tax obligations.
TurboTax Premier Cryptocurrency – How Do I Do This?
It is very similar to what was discussed above for Deluxe.
- Step 1: Go to TurboTax and select either the self-employed or premier package. Once you have created your account, you can now use the TurboTax live app. To get started, answer the initial prompts.
- Step 2: Select “I sold or traded Cryptocurrency”, which is one of the prompts you will be asked to “get an idea of your financial picture”. Select all those that are applicable to you and ensure that you select “I sold or traded cryptocurrency.”
- Step 3: Navigate to the cryptocurrency section. After filling out the initial prompts, jump to TurboTax’s crypto section by navigating to Federal > Wages & Income > Cryptocurrency.
- Step 4: Select “Add” cryptocurrency data. You can select the Crypto tax platform that you used for preparing your crypto data within the cryptocurrency section.
- Step 5: Import your data into TurboTax. After completing your crypto tax report, you can now import it into TurboTax. Download the TurboTax Online CSV.
- Step 6: Once you have downloaded the file, go back to TurboTax to upload this CSV file.Once you have finished, click ‘complete’ and you will see the summary of your cryptocurrency transactions within TurboTax.
- Step 7: You have completed the process.
Cryptocurrency transactions are at times reported on Form 1099-K, 1099-B, or a tax statement sent to you by your exchange. Exchanges aren’t required to send out those forms, so you shouldn’t be surprised if you didn’t receive one for 2021. It is up to you to keep track of your transactions. You can do that by downloading your order or trading history from your exchange’s website in CSV format. If you trade frequently, you should do that at periodic intervals throughout the year because your exchange may limit you to 3 months of data, for instance. You can also enter the data manually.