Everything You Need to Know about Crypto Tax

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If you’ve dipped into the world of Bitcoin and cryptocurrency, you’ve probably faced some questions in the past few years about how this will impact your taxes. As mining and altcoin currency exchanges continue to become more commonplace, the IRS is shifting regulations to keep up, and it’s important to know what type of asset cryptocurrency is, how it is taxed, and what you can do to get your tax burden down.

In this article, we’ll walk through a few common questions about cryptocurrency taxes and how to find a good accountant.

What is cryptocurrency?

Cryptocurrency is a decentralized currency that can be traded online without being traced using a technology called blockchain.

You’ve probably heard of Bitcoin, one of the most recognizable types of crypto. Some other common cryptocurrencies include Litecoin, Dogecoin, Ethereum, Monero, Ripple, Steam, IOTA, NEO, and others.

Who gets taxed on crypto?

If you mine crypto as a hobby or as an established business, you will be taxed on crypto. If you invest and/or exchange goods with crypto you will also be taxed. If any of your income is in a cryptocurrency you will be taxed.

How is cryptocurrency taxed?

Cryptocurrency are currently (regulations are always shifting) categorized as personal property  (excluding mined Bitcoin), which means they are considered capital assets subject to capital gains taxes, which come into play when cryptocurrency is sold, when it is used to purchase goods and services, and when those gains are realized. As of 2021, you only need to list any gains earned from Bitcoin and other altcoins as income when you sell. 

What is the tax rate on cryptocurrency in the USA?

The federal tax rate on cryptocurrency capital gains ranges from 0% to 37%. You can learn more about how to calculate capital gains tax in our article, How to Calculate Capital Gains Tax in the US or Canada.

Note: Because regulations are constantly evolving, it’s best to work with an accountant with cryptocurrency expertise. 

What forms will I need for crypto taxes?

  • IRS Form 8949
  • Schedule D
  • 1040 Schedule 1 or 1040 Schedule C (in some cases)
  • Possibly others

What should I consider in crypto tax strategy?

If you treat your crypto hobby like a business and set up a business entity, you will decrease your tax liability and be able to write off expenses. One key example for Bitcoin Miners is writing off hardware and technology used for mining purposes. 

Do I need an accountant who specializes in crypto?

Yes! As cryptocurrency becomes a bigger part of the global economy, regulators (the IRS included) are placing evolving restrictions and tax obligations on crypto mining, spending, investing, and gains. As these regulation changes impact the way income must be reported and what taxes must be paid, you need an accountant who understands the altcoin economy, is staying up-to-date on constantly-evolving tax obligations. The benefit to you? You’ll maintain as much of your income as possible, and avoid creating liabilities and unexpected penalties.

How do I find a good cryptocurrency accountant?

When searching for a crypto accountant, look for one who lists cryptocurrency as an area of specialty. Ask about how they keep up with regulation changes, how the treat their crypto customers vs. their regular customers, what they know about mining, and whether they have other clients who deal in crypto.

Cryptocurrency accounting is one of our core specialties! So, if you’re in the market look no further. We serve clients all over the US and Canada.

What happens if I get audited?

The potential of an audit is one of the best reasons to work with an accounting expert. If you are audited, your accountant will have filed the appropriate paperwork and will walk you through expectations, request any necessary information, and ensure the audit process goes as smoothly as possible.

If you are facing an audit and calculated your crypto taxes yourself, contact a crypto accountant immediately! It’s impossible to state exactly what will be involved when you’ve filed on your own, but the sooner you get your paperwork in front of a professional to put together an audit strategy, the better!

Summary

Cryptocurrency, how it is regulated and categorized by the IRS, taxes it is subject to, and how its use impacts tax liabilities are constantly changing. The best way to secure your future is by relying on a cryptocurrency accounting expert. 

Engaged in crypto as a business?  Business trading cryptocurrency assets? Business in blockchain support technology? 

How to Report Cryptocurrency Gains and Losses on Your Tax Return

 

  • Form 8949
  • Schedule D
  • Form 1099-B

Form 8949, which reports sales and exchanges of capital assets. On this form, you’ll report gains from sales or exchanges of your Bitcoin (or other altcoins).

You will also need a Schedule D and Form 1099-B, which brokerages provide to taxpayers. Schedule D is where you’ll report gain or loss transactions. There are additional forms you may need.

Read our full blog on how to report crypto on taxes and what forms to use

Cryptocurrency is also known as Bitcoin, virtual assets, Litecoin, Dogecoin, Ethereum, Monero, Ripple, Steam, IOTA, NEO, and others. Purchasing and Trading of cryptocurrency can occur at exchanges such as Coinbase, Kraken, Gemini, Bisq, Binance and others. 

Have questions? Fill out the contact us form below or email us at info@akifcpa.com

Free Consultation with a Crypto Accountant

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