Crypto Taxes USA Crypto Tax Regulations

How to File for an Extension on Your Crypto Tax Return

It’s been a complicated tax year for crypto owners. Wouldn’t it be nice if all you had to do was ask for a bit more time to prepare your crypto tax report from the IRS?

Well, good news. You can and it’s free! 

Having until October 15th so you can present the most accurate tax return possible can give investors much needed breathing room as we near May 17th.  

Complex tax returns almost always have their deadline extended and this tax year has been no exception. Why?

In 2021, US taxpayers received 1099 forms from the IRS that had to be corrected weeks later. As a result, people who filed their tax return too soon weren’t up to date with corrections and updates.

Given the complexity of filing crypto taxes, the delay in getting out tax forms, and the difficulty of calculating crypto gains, more often than not it makes sense to get an extension.

Free File Your Crypto Taxes With The IRS

The IRS offers a program called free file which provides users with software products to help them file their taxes. The following companies let you request a filing extension for free. 

We recommend at CryptoTaxAudit, where we teach people how to prepare their tax returns to report their cryptocurrencies.

However, if you’re working with an accountant or an accounting firm like us, they’ll do the filing extension for you.

What Form do I Need to File An Extension For My Crypto Taxes?

You can request a filing extension until October 15th by filing Form 4868 ahead of midnight on May 17th. We recommend e-filing your application to make sure you hit the deadline – forms sent in the mail might not be processed for months!

Something else to bear in mind is that while filing form 4868 gives you more time to e-file your federal tax return, if you have a balance due, the payment deadline is still going to be May 17th.

This requirement can create a bit of a problem as you won’t know how much your final tax bill will be until you finish your tax return. That said, if you have an idea how much you might owe, you can make an initial estimated tax payment online.

It’s a good idea to create a rough draft of your crypto tax return to establish whether you will owe money or need to receive a tax refund from the IRS.

How Do I Estimate My Crypto Taxes?

Regarding estimated tax payments, the IRS wants to receive their money as you earn it, paid every quarter; this is known paying estimated taxes. 

When you have a job, your employer automatically withholds the taxes, so you don’t have to think about paying estimated taxes to the IRS. We recommend that you attempt to find the best crypto tax tool in order to assist with your tax estimation.

However, investors who realize gains need to be aware that the IRS will want their money quarterly. 

Bear in mind that hodlrs do not realize gains until they sell something, and hodlrs only have a tax liability on the realized gains. 

How do I pay my taxes before my extended deadline?

If you have filed Form 4868 online, you can go to the IRS Direct Pay website to pay your estimated balance. Additionally, some software providers allow you to pay by direct debit from your bank account when you file the extension form.

As you may have gathered, if you pay the IRS before your filing deadline you won’t know how much your taxes are supposed to cost. Unfortunately, an extension is only an extension on when you file the paperwork, not when you pay the taxes.

You still have to pay your taxes on May 17th this tax year.

You may end up guessing and if it turns out that you underpaid any amount of unpaid taxes are subject to penalties which average out at about 1% per month of the unpaid balance.

Here’s where it gets a bit tricky. You don’t want that 1% underpayment penalty, so is it best to overpay your crypto taxes? 

Is It Better To Overpay Your Crypto Taxes?

That’s a good question. My advice is not to overpay. 

The reason being that when you file a crypto tax return and ask for a refund, that could be subject to greater scrutiny than the tax return, which results in money being given to the IRS.

And the IRS doesn’t like giving money back. That’s the reason you have a higher likelihood of being examined. 

It’s better to slightly underpay the IRS and correct the balance when you file your tax return than to overpay them by a lot. 

Are My Crypto Taxes More Likely To Get Audited If I File An Extension?

This question is often asked and the answer is absolutely not. 

About half the US population extends their tax deadline. With taxes becoming so much more complicated, it’s better to do that correctly than to make a mistake by rushing. At Donnelly Tax Law, just about everybody files an extension for their complex tax returns.

Am I Better off Investing Money Than Paying my Taxes If I File An Extension?

Another common question amongst traders is whether they can make more money investing than paying off their taxes, even if they are hit with charges of 1%.

Some crypto traders find themselves asking, “Why should I pay my taxes on the due date when I could use that money better by making investments?”

This is a cash flow decision. However, this scenario comes with obvious risk: you’re essentially gambling with your tax money.

Should there be a steep decline in your cash flow, then you’ll need to take money out quickly so that you can still pay your tax bill.

If you are a prominent trader wanting to play the market, it’s your decision, but we must be very clear that doing so is not recommended.

File Your Crypto Taxes For Free And On Your Own

Members of CryptoTaxAudit, get access to a free masterclass on how to “Do Your Own Bulletproof Crypto Tax Return.” You can learn how to file your complete tax return, W2’s 1099s, and your crypto. 

 You will also receive 10% off your Accointing Pro Plan by registering for our Do Your Own Bulletproof Crypto Tax Return package here.

In this course, you use OLT, one hundred percent free, no matter how much money you make.

This is very important. Why?   

TurboTax only lets you file free up to $38,000 of income, but OLT is a hundred percent free even if you make a billion dollars.

Don’t hold back from filing for an extension that gives you the time you need to create a more accurate crypto tax return.

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