How to File a Tax Extension for Crypto - a Quick Guide

In this article, we’ll help you understand how to file a tax extension and how it can benefit your tax reporting. Additionally, we’ll explain how to make the most of our crypto tax software to simplify the process and guide you through this tax season!

Why Extend Your Tax Return

Filing a tax extension gives you more time to gather the necessary documents and ensure accuracy in your tax return. This is especially important for crypto investors, who often face uncertainty surrounding key taxation issues such as staking, lending, liquidity pools, and NFTs. Extending your tax return provides the opportunity to await further guidance from the Treasury on these topics. Additionally, if you have deposits locked with platforms like Celsius, Voyager, FTX, Gemini Earn, and others, it makes sense to extend your tax return and wait for clarity from the IRS on tax implications.

What is the deadline for filing a tax extension?

It's April 18, the same day as the tax filing deadline.

How to Extend Your Tax Return

To extend your tax return, file Form 4868 by the unextended due date of April 18, 2023. This can be done through a variety of tax tools or by following the IRS instructions. Keep in mind that extending your tax return does not extend your time to pay any balance due, so it's crucial to estimate this amount and pay it by the deadline.

Estimate Your Tax Liability with Crypto Tax Software

Crypto tax tools help you estimate your tax liability by generating a tax report based on your crypto transactions. This is essential for making an informed decision on whether to extend your tax return and for determining any necessary payments.

It’s important you choose reliable crypto tax software that guarantees the accuracy of the generated report. Accointing’s crypto tax platform integrates with various wallets and platforms, making it easy for you to assess your transactions and estimate both short and long-term capital gains as well as taxable crypto income. All you need to do is to connect all your wallets and exchanges to our platform and follow the steps to generate a crypto tax report in a matter of minutes. Here is how to use Accointing to get your crypto taxes done.

Crypto Tax Extension Checklist

Before extending your tax return, follow this general checklist to ensure your extension payment covers all your income and you avoid late payment penalties and interest:

☐ Gather all tax documents and a copy of your last tax return.

☐ Enter as many tax forms (W-2, 1099s, K-1s, etc.) into your tax tool of choice.

☐ Estimate any unaccounted income from the previous year.

Compare your tax return to your prior year return, and identify any income that you had last year but you have not accounted for in your tax return. Often-times K-1s from partnerships and S-corporations can get delayed due to extended business filing times. Estimate this income to the best of your ability, and when in doubt use the prior year as a baseline.

☐ Set up your wallets and review your largest transactions in our crypto tax software.

If you are not done with your crypto portfolio on accointing, we recommend at least setting up your wallets and reviewing your largest transactions. Run a tax report and use this as an estimate of your capital gains (make sure to include short and long term) and your crypto taxable income (staking, hard forks, airdrops, etc). Any unreviewed transactions will impact your tax report, so keep this in mind when using as an estimate. When in doubt, you can overstate your gains and play it safe. Keep in mind that if you have an overall capital loss, you can only deduct $3,000 of this against other ordinary income so knowing that can save you some time for extending.

☐ Run a tax report and use it as an estimate of your capital gains and crypto taxable income.

Make sure that you have accounted for all known taxable income, and either entered your tax forms or estimated, to the best of your ability, your income.

☐ Ensure your payment information is accurate and up-to-date.

Make sure to review that your payment information, whether through tax withholding, estimated tax payments or a prior year overpayment applied to the current year, is accurate. If you do not input the correct amount of payments, your extension payment will be incorrect and you could be subject to late payment penalties and interest.

☐ Have a semi-completed tax return showing your taxable income, tax, payments and balance due or overpayment.

1. If you have an overpayment, you do not owe an extension payment. You can simply file Form 4868 with a few clicks, or by mailing to the address based on the instructions from the IRS.
2. If you have a balance due and you have income subject to estimated tax payments for the new tax year, we recommend that you include any first quarter estimated tax payment with your Form 4868 that you are extending. This will ensure you are overpaying your balance due for extension, and any overpayment on your tax return will be considered a timely first quarter payment for estimated tax purposes. 
3. If you have a balance due and you do not have any taxable income subject to estimated tax payments in the current tax year, just make sure to cover the balance due and submit the payment for the current tax year.

☐ Submit your extension and payment.

You can do this with any tax tool, or with the IRS Free File service. You can also file a paper Form 4868 if you prefer.

☐ Verify state extension requirements.

Please make sure to verify with your state department of revenue office whether it follows the federal extension or requires its own extension. Any tax tools will guide you through this process as well. You will generally also need to pay any balance due for your state and make a first quarter payment.

While most states will grant you an automatic extension with your Federal extension, there are a couple of exceptions. Furthermore, if you expect to owe state taxes, you will generally have to pay the balance due to the state by the unextended deadline, so in cases in which you owe, you might be filing a state extension payment at the unextended deadline. Your tax tool of choice should be able to help you file your state extension payment, if needed.

For additional information on filing your crypto taxes, including 1099 questions, attachments and filing with multiple tax tools, check out our Crypto Tax Filing Guide 2023.

Navigating the tax season can be stressful, especially when dealing with the intricate world of cryptocurrency taxation. Filing a tax extension offers you the extra time needed to accurately assess your tax situation and make informed decisions. Our crypto tax software is designed to make the process easier, more efficient, and less daunting, empowering you to take control of your taxes with confidence. Start your journey toward a stress-free tax season by signing up for a free trial today!

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.