With the Biden administration coming in next week, one thing that we can expect is higher taxes. Especially with the amount of money that will be printed, you know the government will need a way to make it seem like they will be able to pay it off (even though it never will)
That being said, anyone that is new to bitcoin and Crypto, I advise you to start thinking about this now. Taxes on Crypto are Unclear but the IRS does not care, they STILL expect you to PAY YOUR TAXES. If this is going to be the bull run that everyone is claiming it will, then lots of millionaires will be made.
This also means that the IRS will start looking heavily into who is buying bitcoin and who is selling it.
Here are some Tips so you don't hate yourself when tax season comes.
1,) Track ALL transfers, buys, and sells: Currently no exchanges (that I know of) will give you any tax forms for whatever you traded throughout the year. If you are someone that trades a lot, you will be expected to keep track of all loses, gains and transfers yourself. The easiest way to do this will be to create an excel sheet of every time you bought crypto, what price you paid, what price you sold, when you sold, and the profit/loss you incurred. Keep track of this and your CPA will do the rest for how much you owe.
2.) Try not to trade too much: The more trades you make the more you will have to keep track of. If you are doing 10+ trades a day, that will add up fast. Unless you are willing to take the time to write those trades out, then you probably shouldn't make those amount of trades.
3.) Be carful trading BTC pairs: If you are trading BTC/USD pairs then everything will be simple. The second you start trading BTC/altcoin pairs, keeping track becomes VERY COMPLICATED. If you lose bitcoin on a BTC/altcoin pair, but bitcoin went up during that trade, thus the USD value of your account went up, THAT IS A TAXABLE GAIN. Not only is that a taxable gain, it is a taxable short term trade so you will be paying more taxes on the trade. This is one of the MANY reasons I believe trading bitcoin for altcoins is a horrible Idea.
After the last bull run, the IRS started sending out warning letters to people who didn't pay taxes on their crypto gains. This bull run I do not see them being as friendly. I expect them to start making examples out of the ones who try to not pay taxes on their gains regardless of how much you made. It is a well known secret in the Accounting industry that the IRS LOVES going after people who can not afford tax attorneys. It would be a shame for you to have to give up any gains you made trying to fight/ pay the IRS.
Lastly, there is one fool proof way of NEVER paying taxes on your bitcoin. That is to never sell. If you never make a USD profit, you will never get taxed. Just another reason to HODL. For all those that plan on taking profits and do not plan on paying taxes, I wish you the best of luck.
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