In November, the market value of the cryptocurrencies surpassed $3 trillion. The top cryptocurrencies hit all-time highs.
Lawmakers increased their focus on regulation of cryptocurrencies. They debated framework on investor protections, taxes and more. Further regulation is likely to come because of this.
If you were among the many people who traded digital assets this past year, here are three things to do to prepare for the upcoming tax season.
Cryptocurrencies must be reported to the federal government on investors' tax returns.
If you are that person, you should start calculating your profits or losses. It is up to you to sort out your wallet and exchanges, even if it is difficult. The IRS requires investors to keep records that are sufficient to establish the positions taken on tax returns.
Good record keeping is important. Shehan Chandrasekera, head of tax strategy at coin tracker and tax calculator CoinTracker, says it is best to keep your transaction history for at least three years.
You may want to use a software tool that tracks transactions, calculates gains and losses and stores proof in the future.
Chandrasekera told CNBC Make It that investors can build their tax profile and prove to the IRS their actual tax liability.
With the growing possibility of more cryptocurrencies regulation, it may be helpful to work with a CPA who can help guide you through the reporting process and help you plan for the future.
Over the past year, there has been a heightened focus on the regulation of cryptocurrencies. It is impossible to predict what will be said by lawmakers, but it is good to be aware of what is happening.
In the act, policymakers propose to impose rules on the sale of commodities and digital assets. This would prevent investors from buying back the same asset after a loss.
The bipartisan infrastructure bill signed into law in November includes tax reporting provisions that apply to digital assets like cryptocurrencies and NFTs, and will require cryptocurrencies brokers to report gains in a type of form.
The provisions will not take effect until January 2024, and lobbyists within the industry plan to push for amendments and bills to adjust them.
Get smarter about your money and career with our weekly newsletter.
Don't miss: Gen Z and the younger generation will spend a lot of money on cryptocurrencies as holiday gifts.
