Traded cryptocurrency in 2021? Here's how to approach taxes

business-standard.com:

Professionals have a major piece of advice for those who traded cryptocurrency for the first time last year: Take your tax prep seriously.

The IRS has been zooming in on cryptocurrency reporting with increasing interest in recent years. And the last thing you want is to lose money and time reconciling your tax liability, says Douglas Boneparth, a New York City-based certified financial planner.

So as tax season gets into full swing, here's a quick guide to which cryptocurrency activity is reportable, how it's generally taxed and the best ways to prepare.

WHAT YOU NEED TO REPORT TO THE IRS The IRS treats virtual currencies as property, which means they're taxed similarly to stocks. If all you did was purchase cryptocurrency with U.S. dollars, and those assets have been sitting untouched in an exchange or your cryptocurrency wallet, you shouldn't need to worry about reporting to the IRS this year.

Reporting is required when certain events come into play, most commonly:

Selling cryptocurrency for fiat dollars (government-issued currency).

Using cryptocurrency to buy goods or services (e.g., paying for a cup of coffee with cryptocurrency).

A critical distinction to make is that triggering a taxable event doesn't necessarily mean you'll owe taxes, says Andrew Gordon, an Illinois-based certified public accountant and tax attorney. Just because you have to report a transaction doesn't mean you'll end up owing the IRS for it.

HOW CRYPTOCURRENCY IS TAXED Anytime you sell an asset for a profit, your resulting gain may be subject to capital gains taxation. To determine your exact gain or loss, you'll need the date you acquired the cryptocurrency; the date you sold, exchanged or otherwise disposed of it; and the cost basis (the