IRS Free File allows taxpayers to prepare and file their federal income tax online for free. Using your accointing tax reports you can easily file your taxes for free. There are two options available through IRS Free File: Guided Tax Preparation and Free File Fillable Forms.
Guided Tax Preparation is for taxpayers whose adjusted gross income (AGI) is $73,000 or less. It offers free online tax preparation and filing at an IRS partner site. Taxpayers will answer simple questions and the software will do all the math and filing on an IRS partner site. Some state tax preparation and filing may also be free.
Free File Fillable Forms is for taxpayers whose AGI is greater than $73,000. It provides electronic forms that are equivalent to a paper 1040 form. Taxpayers will need to know how to prepare their own tax return using form instructions and IRS publications. It is a free option, but there is no tax preparation guidance or limited calculations provided, and no state tax preparation and filing.
To use IRS Free File, taxpayers should start here and choose one of the two options to be directed to the IRS partner’s website to create an account or log in to an existing one. Taxpayers will then prepare and e-file their federal tax return. The program offers the most commonly filed forms and schedules for taxpayers. Keep in mind that you will need to separately file any state income tax returns.
Reporting your Gains
The easiest way to report your cryptocurrency gains and losses is to summarize your gains into short and long term and mailing-in your details along with Form 8453 if you file electronically, or including your details with your paper-filed return.
For additional information on generating and filing your attachment to form 8949, check out our Crypto Gains – Attachments to your 8949 guide.
Type your short-term gains on Form 8949 Part I and check box C (unless you received a 1099-B). Include the description, date acquired, date sold, proceeds, cost basis and gain or loss. You can summarize all your short-term crypto sales as in the example below – in this case the dates acquired or sold are not relevant, so you can use various and 12/31/22.
Type your long-term gains on Form 8949 Part II and check box F (unless you received a 1099-B). Include the description, date acquired, date sold, proceeds, cost basis and gain or loss. You can summarize all your long-term crypto sales as in the example below – in this case the dates acquired or sold are not relevant, so you can use various and 12/31/22.
Full Detail Gains
If you do not want to send in an attachment, you can report each individual sale separately. You should do this for both short-term sales (on Form 8949 Part I) and long-term sales (on Form 8949 Part II). Below is an example of long-term sales reported separately on Form 8949 Part II.
Schedule D – Summarize your Gains
Schedule D is used to summarize all capital gains and losses, and the totals from each Form 8949 crypto and non-crypto should be included in the corresponding boxes. Refer to the example below and to the previous Forms 8949. Part I of Schedule D summarizes all gains and losses, breaking into short-term and long-term.
Part II of Schedule D combines your total into your net capital gain or loss. If you now have a loss, you can deduct up to 3,000 of this against other ordinary income and carry the rest of the loss forward.
Reporting your Crypto Income
We now have to report any other taxable crypto income such as mining, staking, airdrops or hard forks. Keep in mind that if your income is from a trade or business, such as a Bitcoin mining operation, you will need to report as such. For everyone else, non-business crypto income is reported on Schedule 1 line 8z, ‘Other income’. You can simply report the total from your tax report ‘Taxable Income’ section as shown below. There is no requirement to mail-any attachment of this detail, but you should retain the detail.
If you receive a Form 1099-MISC for any crypto income, make sure to report this within the total of line 8z. Provide a summary schedule such as below. Refer to our Crypto Forms 1099 article for more information on 1099s.
1099-MISC – Kraken – Staking Income – $5,000
Other crypto income not on Forms 1099 – $3,000
Total to Schedule 1 Line 8z – $8,000
Putting it all Together
Form 1040 is the main Individual Income Tax return filed annually by every individual taxpayer. It adds all income from the other schedules and summarizes your tax, payments and refund or balance due. This form summarizes a taxpayer’s entire taxable income from all sources. Do not forget to check ‘Yes’ to the question about digital assets if you can answer as such.
Page 2 of Form 1040 shows the tax, payments and refund or balance due. Refer to the instructions to Form 1040 for information on mailing address, what to include when filing or any other information pertaining to Form 1040 and 1040-SR.
For additional information on filing your crypto taxes, including 1099 questions, extending your tax return, attachments and filing with multiple tax tools, check out our Crypto Tax Filing Guide 2023.
The information contained in this guide, including any supplemental materials, is for general information purposes and does not constitute financial, investment, legal or tax advice. The present content is not intended as a thorough, in-depth analysis, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Please consult your tax advisor.