Did you make money last year from cryptocurrency? The crypto market can be volatile but profitable, especially if you've researched correctly. Like any profitable activity, crypto gains and earnings can create a tax liability. You could face fines, penalties, or criminal action if you file incorrectly or omit income or gains. Fortunately, there are steps you can take to get your tax return correct and minimize mistakes. Below are a few mistakes to avoid as you file taxes for your crypto income and gains.

Report everything

Some crypto owners and traders believe it's possible to hide their earnings from the IRS. They believe that the IRS can't track transactions because exchanges are decentralized. That couldn't be farther from the truth. Nearly every major crypto exchange collects user data. The IRS can use a summons to obtain that information relatively easily. They will likely find out if you try to hide income or gains from the IRS. You could face fines, penalties, or even criminal charges depending on the amount involved. Avoid all those consequences by being honest and transparent about your crypto gains.

Harvest your losses

Your tax return is an opportunity to report your gains and also your losses. Reporting losses is important because those capital losses can offset your capital gains. The only caveat is that the loss must be realized, which means you must sell the asset and lock in the loss to count it on your tax return. Taking a loss is never fun, but it could be worth it if you don't expect the asset to recover. Selling at a loss can help you offset gains and reduce your taxes. 

Disclose past gains

It's possible that you have crypto gains from past years that you didn't disclose. Just because the IRS didn't notify you about those gains in the past doesn't mean you're off the hook. The IRS looks closely at past transactions to identify possible unreported gains and income. If you have past gains you didn't report, it's wise to report them as soon as possible rather than waiting for the IRS to track you down. If you report it first, you can negotiate a payment plan and end ongoing penalties and interest. You could save yourself significant money by being proactive and reporting your past crypto income.  

No one likes paying taxes, but if you don't, they'll only get more costly over time. A crypto tax lawyer can help you file your return and avoid costly mistakes. Contact a crypto tax lawyer in your area today.