This article comes fromDecrypt, original author: Mackenzie Patel

Odaily Translator | Nian Yin Si Tang

Odaily Translator | Nian Yin Si Tang

Note: Mackenzie Patel is a CPA specializing in crypto taxation and accounting. She is a Senior Revenue Accountant for Figment.With just over a week until the US 2021 tax deadline, it’s time to finalize your returns and make sure any crypto activity is being accurately reported. Although fromFirst page of Form 1040

To help you avoid rookie mistakes, here are some common tax myths, along with facts to help you get your taxes right.

secondary title

Myth 1: Cryptocurrencies are money

The rationale for crypto taxes boils down to the fact that the IRS treats cryptocurrencies as property, not currency. That means cryptocurrencies — virtual assets that facilitate the exchange of value — are more like a house than cash. This treatment has given rise to convoluted property tax rules and the “all caps” term you might see on Twitter — capital gains.

There are two categories of tax treatment associated with cryptocurrencies: (1) income and (2) capital gains or losses.

Cryptocurrencies on the other hand include capital gains, which are realized when you sell, trade or spend cryptocurrencies. Buying cryptocurrencies on an exchange is tax-free — the IRS only has eyes on you if the substance of that currency changes through sale, trade, or spending.

secondary title

Myth 2: Long-term capital gains are not taxed

Here is a simplified explanation of capital gains:

Acquiring "value" refers to the cost basis of the currency, or how much you paid to acquire it. There is a slight difference between short-term (<12 months) and long-term (>12 months) capital gains. The former is still taxed at the ordinary rate, while the latter is taxed at the preferential rate. This means there are benefits to holding the asset for at least a year, but you still have to pay taxes.

secondary title

Myth 3: Staking rewards are not taxable

A couple who sued the IRS for taxing their Tezos staking rewards were given a refund by the IRS, causing a stir in the crypto tax space. The plaintiffs argue that their staking rewards, similar to a stock split, are "newly created property" that are not taxable.

To be on the safe side, I recommend treating all staking rewards as ordinary income. Most coin tracking software has a set of options for "Treat rewards as income?", so you can always turn it off if the guidelines change.

secondary title

Myth 4: NFTs are not taxable

2021 is the peak of NFT mania, but many collectors will be surprised when it comes to tax policy. Because buying NFTs with cryptocurrencies is considered a taxable activity and capital gains rules apply. Selling or exchanging an NFT triggers the same thing - only if you (1) donate the NFT, (2) buy it with fiat currency, (3) mint it, or (4) give it away (up to a limit of $15,000), You can avoid NFT taxes.

The IRS specifically mentions "coins and artwork" in the collectibles section of IRC, so expect more clarification once the IRS figures out what an NFT is.

secondary title

as fidelityexplainexplain

While wash sales typically apply to stocks and securities, cryptocurrencies are considered property for tax purposes, meaning this old-school rule does not apply. This means that, technically, you can buy and sell as often as possible to maximize your losses. While taxpayers are limited to losses of up to $3,000, any excess losses can be carried forward and used to offset future gains from cryptocurrencies and other capital assets.

secondary title

Myth 6: Airdrops are not taxable

Seems like everyone got an ENS airdrop this year. While that looks good, the tax consequences are less rosy. If you claim the airdrop in 2021, the income you earn is equal to the transaction price on the day of claim multiplied by the amount of ENS. ENS went live at $43.44 before surging to a high of $83.40, so depending on when you claim it, there will be a definite price tag.

To avoid airdrop tax evasion, check your wallet frequently to see if any new tokens magically appear. The tax won’t go into effect until you’re able to “transfer, sell, exchange, or otherwise dispose of the cryptocurrency,” so check to see if your exchange account supports the airdrop token. If not supported, don't worry about recording revenue until pricing and market liquidity occurs.

secondary title

Myth 7: Software solves everything

Software certainly helps, but it doesn't cover every situation yet.

While technically all data is on the blockchain, extracting the data and making it satisfactory is not always simple. Ethereum-based transactions are easier because most crypto tax software is compatible with the EVM chain. However, if you transact on less popular chains, the data can be sparse and unwieldy. Providers like CoinTracker or Koinly do not support automatic integration of these assets, as they have low trading volume and require manual import.

If you're using randomized sidechains, or pursuing multiple chains, it's a good idea to set up a comprehensive data plan so you don't have to fumble around when April 17th rolls around. To avoid last minute tax confusion, I recommend getting an automated token tracker ASAP and setting aside time each month to review and manually add transactions, if needed.