Day Trading Bitcoin Taxes Explained

Taxes can be a complex issue for day traders in whatever country of the world you are located.

Here we focus on day trading taxes in the USA and whether you are a part-time or a full-time trader there are various tax aspects which will need your condsideration.

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Here are some basic issues related to taxes and crypto trading which can help you optimize your trading strategy and make an optimum way through your US tax obligations.

Q.   How is Day Trading Taxed in USA?
A.   Day traders are liable to pay a short-term capital gains tax on profits of 28%. It's possible to deduct losses from the gains to reach the taxable amount.

Q.   What Forms are Needed for Reporting Day Trading Taxes?
A.   Two forms are needed: Form 8949 and Schedule D.

Q.   How to File U.S. Day Trading Taxes?
A.   You need to basically differentiate between long term and short term investments. Long term investments are those held for longer than one year and are taxed at a lower rate than deals which you hold for less than a year, which are liable for tax at the normal income rate.

Here is a Table for U.S. Day Trading Tax Rates:

Gross Annual Income	Long-Term Tax Rate	Standard Tax Rate
< $9'325	0%	10%
$9'326-$37'950	0%	15%
$37'951-$91'900	15%	25%
$91'901-$191'650	15%	28%
$191'651-$416'700	15%	33%
$416'701-$418'400	15%	35%
> $418'400	20%	39.6%

Traders should keep separate accounts for day trading on the one hand and for their long-term investment portfolio on the other.

Where to File

Traders need to report profits and losses using Schedule D and Form 8949. Not more than $3'000 of net capital losses per year can be deducted. But if you are married and have separate filing status then the deduction is $1'500.

Traders need to provide receipts for the specific trades that are claimed as losses and the wash sale rule states that one cannot hold shares of the stock 30 days before or after the holding period you want to claim them for a tax refund.

Schedule C should contain expenses and zero income only. Schedule D should reflect trading profits and to avoid confusion, a statement detailing your situation can be included. Losses exceeding $3'000 cannot be claimed and need to be carried forward as a straight loss.

Day Trader Tax Software

Traders Accounting
Trader’s Accounting offers a range of tax preparation services specifically designed to save time for active traders. These services can provide traders with maximum IRS benefits at tax time. They also provide tools to help traders build and preserve wealth for the future. Apart from providing tax preparation services, it can also help establish trading businesses, so optimizing profitability.

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TradeLog
TradeLog software can provide benefits for active traders as well as for casual investors with just 50 or so trades per year. With this software you can import a complete year with just a few clicks and it can import from your online brokerage trading history report rather than your profit and losses report. TradeLog also provides extensive editing tools and trade matching algorithms.

CryptoTrader.tax
CryptoTrader is a reliable crypto tax software and calculator that will quickly import your trades by integrating with all major crypto exchanges. You can the add your cryptocurrency income sources for the tax year and the software will calculate your mining profits, staking, gifts, airdrops and forks. You can download your transaction data and your completed crypto tax report, ready to file.

TaxBit
TaxBit software can help you with a seamless cryptocurrency tax experience, facilitating the issuance of 1099s or reporting your own taxes and connecting the processes with other data to create completed ready-to-file tax reports. An important benefit of the software is the ability to see the real-time tax impact of your transactions on any crypto exchange you use.

Trader Tax Status (TTS) Designation

It's possible you may qualify for Trader Tax Status (TTS) if you trade for more than 30 hours per week and if your trades average exceeds 4 or 5 intraday trades per day for most of a tax year.

Note that this designation is not guaranteed and you will need to check the IRS webpage for more information on TTS. This can provide many tax efficiency opportunities because professional traders can report their trading income and their liabilities under Schedule C business expenses.

The benefits of this include being able to deduct certain items, e.g. trading and home office expenses.

TTS allows crypto traders to deduct losses larger than the $3'000 permitted as capital losses. TTS traders need to make a mark-to-market election on the 15th April of the previous tax year, permitting them to include all of their trading gains and losses as business property on Part II of IRS form 4797. Traders who do this are also exempt from the wash sale rule.

Mark-to-Market accounting concerns only the total of a tax year’s losses and profits. Not to forget that in addition to electing in the previous tax year, traders selecting the mark-to-market accounting method need to pretend to sell all their holdings at current market price on the year's last trading day and pretend to buy them back again once the new year's trading restarts.

This is a paper transaction but needs to be done in order to provide a total accounting of the business assets for each year.

Investigate Your Taxation

The tax code details for traders are complex and there is much more you may want to investigate yourself. We recommend this guide to estimate your current taxation situation and prepare for the future.

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