As the tax filing deadline looms, investors in the cryptocurrency space are being advised to submit an extension if they are still grappling with sorting out their crypto activity. Shehan Chandrasekera from CoinTracker advises this as the time to do this is running out. The deadline for filing a tax return or extension is April 18th, and filers would also need to pay for an extension - even though the exact liability amount does not have to be paid. This would give filers until October 15th to get their returns in order.

The Internal Revenue Service (IRS) has been attempting to increase surveillance over crypto activity and this means that traders must remain vigilant. The agency updated the individual income tax return, Form 1040, in 2022, to clarify information such as digital assets earned through rewards, awards, compensation and whether they were sent or received as gifts. Gifts are not taxable but traders must answer the question to remain compliant with the tax authority.

It is up to the investor to keep on top of their transactions and gains and losses, as wallets and exchanges do not provide taxpayers with tax forms at the end of the year. Losses can be beneficial for lowering taxable gains and even helping to offset income taxes in certain situations. However, failure to disclose or file correctly can lead to penalties and fines, which vary depending on the offense.

This year is likely one of the last where crypto trading will be operating under this system, as changes to how NFT tax classifications and brokers are defined by the IRS are expected to come into place in future tax years. This serves as a reminder for individuals to look out for any new guidance.



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