The cryptocurrency market is booming each day. Investors, companies, and institutions have taken notice of it. Moreover, it has already been included in your taxation processes.
Aside from other challenges, we understand that keeping proper records of your Bitcoin transactions is a bit challenging. The enormity of the task becomes very complex if you trade Bitcoin daily.
You will have to maintain a proper record of all your transactions to align yourself with the taxation processes.
We have spent years understanding taxation challenges. To solve your problems with bookkeeping, we have gathered some points that can help you be more efficient while managing cryptocurrency assets for the taxation processes.
Please note that these tips are not limited to Bitcoin only; they can also apply to other cryptocurrencies.
Tips to Manage Your Bitcoin Bookkeeping Effectively
1 – Taking Note of Your Capital Gains
While everybody takes cryptocurrency as a form of virtual currency, the taxation process takes cryptocurrency as an investment. This further implies that if you own Bitcoins, all of your capital gains will be taxable similar to your assets in the real estate.
While maintaining the bookkeeping of your Bitcoin transaction, it is important that you should keep a proper record of your capital gains as well.
Moreover, capital gains are not only limited to your Bitcoins transactions, but they also apply to your Bitcoin/cryptocurrency income.
2 – Record Capital Gain/Loss on Your Adjusted Cost Base
The cost basis refers to the original value or purchased price plus any fee involved in the process of selling or receiving your Bitcoin.
For example, you received a Bitcoin worth $2,000. The transaction fee involved in the process was $200. After one year, the value of your Bitcoin got increased, and you sold it for $3,000.
Capital gain will be as follows:
=$3000 – $2200 = $800
This $800 can be Short term gain or Long term gain depending on the date at which bitcoin was bought and Accounting principles as well (FIFO or LIFO)
Moreover, the Adjusted Cost Base refers to the average cost from the point where you purchased your first Bitcoin to the end, where you bought the last one.
It is also important to note that the cost base is not only limited to Bitcoin only, but you also have to calculate it for other cryptocurrencies, for example, ETH and ADA.
3 – Deduct Your Bitcoin Donations
The IRS recognizes some of the charities. If you donate your cryptocurrencies to these recognized charities, you can exempt taxes accordingly.
By calculating fair market value, you may be able to deduct donations from your Bitcoin taxes in your bookkeeping.
4 – Taking Note of Taxable Bitcoin Income
In addition to your taxes on capital gain/loss, your Bitcoin income is also taxable. If you receive Bitcoin in airdrops, forks, and mining, it will be considered under cryptocurrency income.
It is essential to add your Bitcoin income while maintaining a proper record for bookkeeping. Similar to capital gains in the Bitcoin transactions, the Bitcoin income is also subjected to capital gain/loss.
5 – Making a Note of Vendor Payment
If you make any payments with your Bitcoin, taxation processes ask to report such activities. Moreover, the IRS has dedicated rules for it.
If you make any Bitcoin payment with a market value of $600 or above, you must report this to the IRS. To report such income, you may use Form 1099-MISC.
Since the IRS takes this activity under taxation rules, you need to keep a record of your vendor payments while maintaining your Bitcoin bookkeeping.
6 – Record Every Single Transaction of Your Bitcoins
Crypto rules and regulations constantly fluctuate. It is always advisable to record every transaction with invoices or any other proof involved in the taxation processes.
Keeping a proper balance sheet can save you from all the fluctuating rules since you will be ready to present the data for any changes happening in the taxation rules.
In addition to your transaction, it is also essential to note your exchange name, your wallet address, and your present market value for a Bitcoin transaction.
7 – Take Help from Automated Bookkeeping Tools
If you trade Bitcoin daily, you will be involved in hundreds of transactions. Maintaining daily records may consume unnecessary time, resulting in creating some errors. We’d recommend using a crypto accounting automated tool to help you maintain your records effectively.
We Can Take Care of Your Bitcoin Bookkeeping
Maintaining crypto bookkeeping is tough. Moreover, it is more challenging for people who are new to taxation rules and don’t know much about crypto taxes. You may end up wasting a lot of time and may risk your money.
At AkifCPA, we have spent years understanding taxation challenges and are religiously committed to our services.
Save your money and time today. Get help today; we’d love to work for you.
