Top 5 Crypto Tax Mistakes to Avoid

March 31, 2023

Are you confused about how to handle your crypto taxes? You’re not alone. Many people don’t realize that cryptocurrency is taxable, and even fewer understand how to accurately report their transactions.

At Gordon Law Group, we can help you save time, save money, and avoid IRS problems by guiding you through the complex world of cryptocurrency taxes.

We’ve focused on crypto tax since 2014 and have seen it all! In this post, we’ll cover the top 5 crypto tax mistakes that can lead to hefty penalties and audits from the IRS. Armed with this knowledge, you can invest in crypto with confidence and peace of mind.

If you need help filing your crypto taxes before the April 18, 2023 deadline, don’t wait. Call Gordon Law Group now at (847) 580-1279!

1. Underestimating the IRS’s Ability to Trace Your Crypto Activity

One of the biggest misconceptions about crypto is that it’s anonymous and untraceable. While it’s true that some cryptocurrencies are designed to be more private than others, the IRS has developed sophisticated tools to track crypto transactions. If you fail to report your crypto activity accurately, you can be sure that the IRS will eventually catch up with you.

2. Guessing or Averaging Cost Basis

When you sell or swap your crypto, you’ll need to calculate your cost basis to determine your capital gain or loss. Your cost basis is the amount you paid for your crypto plus any additional fees or expenses. Some people make the mistake of guessing their cost basis or simply using an average value for all transactions, which can result in inaccurate reporting and potential penalties from the IRS. It’s important to keep accurate records of your crypto transactions and calculate your cost basis correctly.

Using crypto tax software can help you calculate your cost basis, but even the best crypto tax software can have mistakes. If you’re still having problems, call Gordon Law Group at (847) 580-1279! We can do it all for you and prepare both the crypto and non-crypto portion of your tax return.

3. Ignoring or Misreporting Airdrops

Airdrops, or free tokens or coins distributed to investors, can be an exciting perk of investing in cryptocurrency. However, they can also create tax liabilities and challenges for investors. Here are 3 common issues to watch out for:

  • Your taxable income is the fair market value of the airdropped coins at the time of receipt. This means that even if the coins’ value plummets later on, you may still face a high tax liability.
  • Some airdrops are either worthless or scams, but tax software will still pick them up and inflate your taxable income. Correcting this problem may require manual review of thousands of airdrops.
  • You may have received airdrops without even realizing it, so it’s important to check. Failure to report airdrops can result in penalties and interest charges from the IRS.

At Gordon Law Group, our experienced tax attorneys can help you navigate these challenges by staying on top of the latest regulations and requirements for airdrops. We can ensure that you report your airdrops accurately and minimize your tax liability. Don’t let airdrops catch you off guard – contact Gordon Law Group today for expert guidance on your crypto taxes.

4. Not Claiming Capital Losses

It’s important to remember that losses from cryptocurrency investments can be used to offset capital gains, just like losses from other investments. If you sell your crypto for less than you paid for it, you can claim a capital loss on your tax return. This can help reduce your tax liability and save you money. Check out our post on crypto tax loss harvesting for more information.

5. Not Filing Because You Can’t Pay

Some people make the mistake of not filing their tax return because they can’t afford to pay what they owe. This is a big mistake that can result in additional penalties and interest charges from the IRS. It’s better to file your tax return on time (or request an extension before the deadline) and work out a payment plan with the IRS than to not file at all.

You may find that creating your crypto tax report is taking much longer than you thought, so you’re not even sure what you’ll owe. In this case, you can estimate your crypto income and amend your tax return later. Contact Gordon Law Group online or call us at (847) 580-1279 for more information!

Save Time, Save Money, and Enjoy Peace of Mind with Professional Tax Help!

If you’re unsure about how to report your crypto transactions or need help navigating the complex world of cryptocurrency taxes, the team at Gordon Law Group can help. Our experienced tax attorneys can save you time, save you money, and help you avoid IRS problems. Don’t risk facing penalties and audits from the IRS. Call Gordon Law Group today at (847) 580-1279 and let us help you stay on top of your crypto taxes!

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