Cryptocurrency Tax Accountant and CPA
As a trader of virtual currency, you have many questions. How do I report crypto trades? When is a cryptocurrency transaction taxable? The list is endless. You need solid answers, not double-talk or half-answers. Well, you have come to the right place. Not only am I a cryptocurrency CPA, I’m also a trader. I know both sides of the digital asset world.
I can help with all your transaction questions and reporting. Coin, NFT, purchasing, selling, gifting, these are just a few of the areas of specialty for my firm. Far too many CPA’s will turn you away once you trade Bitcoin. Or worse, they will tell you they can take care of it, then fail miserably.
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Crypto is based in blockchain technology and offers a decentralized platform for exchange. Even though all transactions are open and transparent, there is a high level of security. Transactions are all verified before they happen leading to better confidence in the system. The cryptocurrency block is irreversible, so in some cases, buyer beware. This block chain mining keeps the system functioning. Many of you are familiar with the tech side of the process, but not the legal (tax) side.
Below is a Q & A session on crypto. It is updated regularly, so you know you are getting the best, and latest, information.
Is it a taxable event to move tokens from one wallet/exchange to another?
This situation is not a taxable event. The IRS does not consider crypto a currency, but an asset akin to stock. An example of such a move is when you take Bitcoin and transfer it from a Coinbase account to a Binance account. It’s the same as when you move shares of stock in Amazon between TD Ameritrade and Merrill Lynch accounts. There is no taxable trigger.
In a general sense, because it is an asset, it is taxable when disposed of, like the sale of Amazon stock or a property you own. Triggers of taxable events include selling, spending, earning, and sometimes giving it to another.
When you move coin from wallet to wallet, you have not sold or spent your asset, so capital gains taxes are not applicable. You should however keep solid records of your transfers, sales, and yes, purchases. Remember, the IRS will always look at moves as potential transactions and you may need to prove your transfers, sales, and the basis of the coin.
Will I recognize a gain or loss when I sell my virtual currency for real currency?
When you sell virtual currency, you recognize capital gain or loss on the sale, Much the same way as you would if you owned Amazon stock and sold it for real currency. Here’s an example.
You purchase 0.50 Ethereum for $850. One month later, your 0.50 increases in value to $1,000. That day you sell it for $1,000 USD. Did you incur capital gain or loss? Yes, this created a taxable event, a capital gain.
Gain is calculated as:
$1,000 proceeds (price at sale, or transfer) less cost paid $850, $150 is your short-term capital gain. If you had held the ETH for more than one year before selling, it would be long-term capital gain.
How do I determine if my gain or loss is a short-term or long-term capital gain or loss?
Similar to other assets a long-term capital gain is reported for assets held greater than one year and short-term capital gain is reported on assets held less than one year. The holding period starts the day after purchase and ends on the date of sale/exchange.
If I pay someone for an item with Bitcoin or Ethereum, is that a taxable event?
Cryptocurrencies like bitcoin and Ethereum are treated as an asset for tax purposes. As such, there is a taxable event triggered when they are used to pay for goods or services. It’s the same as if you sold it at that moment at the price paid for the goods received. You are now involved in a transaction which creates a capital gain or loss for tax purposes.
Here’s an example of purchasing a $1,000 laptop with Ethereum coin(s) and how it is reported on your Form 1040.
You purchase 0.50 Ethereum for $850. One month later, your 0.50 increases in value to $1,000. That day you buy a laptop for $1,000 via the 0.50 ETH. Did you incur capital gain or loss? Yes, this purchase created a taxable event, a capital gain.
Gain is calculated as:
$1,000 proceeds (price at sale, or transfer) less cost paid $850, $150 is your short-term capital gain. If you had held the ETH for more than one year before buying the laptop, it would be long-term capital gain.
Will I recognize a gain or loss when I sell my virtual currency for real currency?
When you sell virtual currency, you recognize capital gain or loss on the sale, Much the same way as you would if you owned Amazon stock and sold it for real currency. Here’s an example.
You purchase 0.50 Ethereum for $850. One month later, your 0.50 increases in value to $1,000. That day you sell it for $1,000 USD. Did you incur capital gain or loss? Yes, this created a taxable event, a capital gain.
Gain is calculated as:
$1,000 proceeds (price at sale, or transfer) less cost paid $850, $150 is your short-term capital gain. If you had held the ETH for more than one year before selling, it would be long-term capital gain.
How do I determine if my gain or loss is a short-term or long-term capital gain or loss?
Similar to other assets a long-term capital gain is reported for assets held greater than one year and short-term capital gain is reported on assets held less than one year. The holding period starts the day after purchase and ends on the date of sale/exchange.
