Crypto Tax: What You Need To Know
The brave new world of cryptocurrency can be confusing, especially when the IRS comes to collect. We all know that when wealth is born, it will almost certainly be taxed in some way, shape, or form. The IRS is seeking extensive information from taxpayers concerning digital property acquisitions and transactions. To lower your cryptocurrency tax liabilities on your reporting, our experienced professionals analyze your crypto transactions to determine the character of your crypto gain or loss. We also ensure that all reporting requirements are met, preventing penalties for non-compliance.
How is Cryptocurrency Taxed?
The IRS views cryptocurrency holdings as property. A transaction
with cryptocurrency is a taxable event. Two types of tax apply to
cryptocurrency: capital gains tax and income tax. There
is no clear-cut rate regarding tax rates as it varies depending on each transaction situation.
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Taxable Crypto Events:
Crypto Gains Tax
Capital gains are profits earned from buying and selling property like stocks, real estate, and crypto. If you sell a cryptocurrency for more than what you paid for it, you’ve made a capital gain. The length of which you had your crypto in possession affects the amount of your tax liability. If you hold cryptocurrencies for 12 months or less, you are liable for short-term capital gains tax; If you hold crypto for more than 12 months, you are liable for long-term capital gains tax.
- Selling crypto for USD/fiat
- Exchanging one type of crypto for another
- Paying with Crypto for goods and services
- Buying, selling an NFT
- Cryptocurrency Tax Accountant Los Angeles
Crypto Income Tax
You might receive crypto as payment instead of cash, rewards for certain activities, etc. You’ll need to record the fair market value of the crypto income as of the moment the cryptocurrency was received. Your cost basis is the fair market value of the cryptocurrency the moment you received it. Additional information can be found on the IRS webpage, you can also call us to find out more about your specific case.
- Receiving Crypto as payment for goods and services
- Receiving an airdrop
- Receiving mining or staking rewards
- Receiving crypto in P2E games
Cryptocurrency Tax Obligations for Day/Swing Traders
Day/swing traders buy and sell cryptocurrencies within short time frames to take advantage of price fluctuations. The tax treatment of day/swing trading activities differs from that of long-term investors. Day/swing traders are subject to ordinary income tax rates on their profits, which can be as high as 37%. Additionally, they may be subject to self-employment tax if they engage in trading activities as a business.
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