While tokens purchased using fiat currency are not considered as taxable transactions, any tokens purchased using a different cryptocurrency like Ethereum or Bitcoin, for example, will attract income tax.Token purchasers in an ICO (Initial Coin Offering) typically conduct the purchase to hold the investment on the asset with the hope that it will appreciate in value. This taxable amount is calculated as the difference between the tax basis in exchange cryptocurrency and the value of the tokens that are purchased. Not much clarity is provided on transactions before 2018, however, after January 1, 2018, exchanging one type of cryptocurrency for another will attract tax.
For taxation purposes, if a token is used to pay a fee for using a blockchain platform or is used as a form of currency for exchanging property or services on such a platform, then such a transaction of tokens will attract tax implications.
If the token issuer is providing a service that can’t be assessed unless the previously issued tokens are used, then the issuer’s income will be considered as income equal to the fair market value of tokens at such a time when they are used.
Using TurboTax To Report Crypto Taxes
TurboTax is a well-known American tax calculation and preparation software that is a part of Intuit Inc. this platform offers an extremely easy DIY solution for cryptocurrency traders and investors to report as well as file their cryptocurrency losses and gains.
To begin with, TurboTax provides different packages including Premier, Self-employed, Premier live, and Self-employed live. For calculating crypto taxes using the online version of TurboTax, users can choose one of their packages after logging onto the portal and follow the below steps:
Users must select the ‘I sold or traded cryptocurrency’ prompt. This is one of the few prompts to answer in order for the app to get the user’s overall financial picture. The user must choose all options that are applicable.
Next is the crypto section of the app that is under the ‘Wages & income’ category and where users go to ‘Edit/Add’ cryptocurrency data. Here, one can select the specific crypto tax platform that is applicable.
The next step is to complete the crypto tax report. It can be done manually or by third-party software to prepare the report and then import it to TurboTax.
After selecting all taxable transactions, a summary of all cryptocurrency transactions that are included in TurboTax will be shown.
The cryptocurrency data is finally uploaded on TurboTax and shows all short-term and long-term gains or losses.
The downloaded (or CD/desktop) version of TurboTax offers a higher transaction limit than the web version. This can be useful in case cryptocurrency transactions are more than 3,000 in number.
Using TaxAct To Report Crypto Taxes
TaxAct is another American software company that specializes in tax preparation software. Their software package - TaxAct, caters to individuals, professional affiliates as well as companies. Like most other tax collation and filing software products, the TaxAct has also incorporated the filing of cryptocurrency taxes in their offerings. This process involves the following steps,
The first step is to create an account on the TaxAct web portal. This is relatively easy as it requires basic information and is done in a few steps.
Once the TaxAct account is created, users must navigate to the section titled ‘Investment Income’ under ‘Federal’.
The next step is to select ‘Gain or loss on the sale of investments’ under the ‘Investment Income’ drop down options.
The ‘Gain or loss on the sale of investments’ section has several options. For crypto taxation purposes, the ‘Stock import data’ option is the one to be selected.
Here one can select how to import cryptocurrency transaction data into the TaxAct Account. This can be done as an electronic import or as a CSV import. CSV files can be compiled using third-party software or can be self-created as well.
Once the user downloads the file a preview of the same is also shown to ensure that the format of the downloaded data matches the original format.
After verifying all data, TaxAct Stock Assistant can be launched. This section allows for managing all transactions in a single location.
8. TaxAct account can now be used to select and file the relevant crypto taxes.