Many taxpayers rush to finish their taxes on April 15, but October 17 is the critical deadline for those who file extensions. If you filed an extension last year, you only have about a month left to finish preparing your taxes and make any necessary payments. But, even if you completed your taxes last April, it's an excellent time to ensure you're on track for the year.
Let's look at what tax moves you might have to make in October, how to prepare your crypto taxes, and how software can simplify the process.
Most taxpayers finish their taxes on April 15, but those that filed extensions face an October 17 deadline. Here's what you need to know about the upcoming deadline and some tips for crypto holders.
Tax Deadlines on October 17
Many crypto traders and investors filed for an extension last year to give them more time to accurately compute their tax liabilities. The October 17 deadline for these extensions is fast-approaching, and those that haven't finished their 2021 tax filings should wrap them up. And, of course, taxpayers that underpaid must make the government whole.
Tax extensions provide extra time to complete a tax return – although taxpayers must still pay what they think they owe. If you underpaid, you might have to pay a late payment penalty equal to 0.5% of the difference charged for each month since the tax was due. However, you can avoid these penalties if you can show reasonable cause.
October 17 is also the deadline to make retirement contributions to a SEP IRA or Solo 401(k). While crypto remains rare in retirement accounts, self-directed IRAs may hold these kinds of alternative assets. So, if you want to contribute for the 2021 tax year, there's still time to move money around to optimize retirement tax strategies.
On a related note, October 17 is the deadline for withdrawing or recharacterizing excess IRA contributions. For example, if you earned more than you thought in 2021 and need to reduce your contributions, you must remove the excess contribution before October 17. The same is true if you want to recharacterize the contributions into a traditional IRA.
What You Need to File Crypto Taxes
The IRS stance on cryptocurrency transactions is clear – the agency treats virtual currency as property subject to capital gains taxes. That said, the IRS is a little less clear on the specifics. For example, the agency hasn't provided clear guidance on the tax treatment of non-fungible tokens (NFTs) or decentralized finance (DeFi) rewards.
DeFi protocols have become the most contentious debate. For instance, if you lend cryptocurrency on a DeFi platform, you're never actually selling a capital asset. However, if a DeFi lending pool gives you a token in return that represents your asset, it could be seen as a crypto-to-crypto trade that's subject to capital gains taxes and resets your cost basis.
In addition to these ambiguities, taxpayers may find it challenging to aggregate their transactions across various wallets and exchanges to compute their capital gain or loss. For example, you may need to organize transactions by date across exchanges to calculate an accurate cost basis, which means going through many records.
The IRS' crackdown on cryptocurrencies makes it essential to make accurate calculations that are defensible in an audit. After all, many exchanges report transactions to the IRS, but the agency isn’t aware of your actual cost basis. So if they see a high level of “profit” in these reports, you might have to prove to the IRS that your cost basis is higher, if that’s the case.
Simplify Your Taxes with ZenLedger
ZenLedger automatically aggregates your crypto transactions across more than 400 exchanges and wallets, computes your capital gain or loss, and pre-populates the IRS forms you need to file each year. In addition, the platform can help identify opportunities to harvest tax losses and reduce your annual capital gains tax bill.
Unlike many competitors, ZenLedger's Grand Unified Accounting makes it easy to defend yourself in the event of an audit. You can easily export all your trades to a spreadsheet that clarifies how the cost basis was calculated, regardless of what individual exchanges might say. That way, you can rest easier if you receive an audit notice.
ZenLedger also handles a greater variety of crypto assets than many competitors. For instance, the platform supports over 100 different DeFi platforms and NFTs, far more than the closest competitor, which supports only about 20 DeFi platforms. Finally, it also supports the broadest range of exchanges, blockchains, and hardware/software wallets.
Many crypto traders and investors should consider using a crypto-savvy accountant to minimize their tax liability and ensure accuracy. Fortunately, ZenLedger makes it easy to provide access to your transactional data with an accountant. In fact, we even provide a professional suite for tax professionals looking to manage their crypto clients!
Other Tax Deadlines
The April 15 and October 17 tax deadlines aren’t the only dates that crypto traders and investors need to remember. If you generate self-employment income from trading or mining cryptocurrencies, you may need to make estimated quarterly payments to avoid penalties and interest. And, it’s never too early to begin preparing for April 15, 2023!
The Bottom Line
The October 17 tax deadline for those that filed for extensions is coming in about a month. So, if you still haven't completed your crypto taxes, it's an excellent time to consider using a software platform like ZenLedger to help you organize your transactions and ensure an accurate return. And, you can find opportunities to save during the current tax year!
Sign up for ZenLedger to start streamlining your taxes today!