As of 2024 over 40% of the US adult population has some form of cryptocurrency. But only a small percentage of that number actually files accurate tax returns for the crypto transactions.
The IRS treats cryptocurrencies (I will use the abbreviation “CC” from now on) as property, which means they are subject to income tax and capital gains/losses just like stocks in a brokerage account.
These are some of the taxable events that must be reported on a US tax return:
- Exchanging/trading one CC coin/token for another CC coin/token
- Spending CC coins/tokens to buy goods and/or services
- Earning CC when being paid by an employer in CC, or when being paid as an independent contractor in CC
- If you pay anyone else in CC
- When you convert CC back to fiat (US dollars)
- Any mining income from CC
- Any staking income from CC
- Any other type of “income” generated from your CC coins/tokens
You cannot ignore your crypto tax obligations!
The IRS has a new initiative called “Operation Hidden Treasure” where they have revenue agents specifically trained in cryptocurrencies, who focus on taxpayers who omit CC transactions from their tax returns.
If you answer the question on page 1 of the US 1040 form regarding cryptocurrency falsely, you are committing perjury and the IRS can bring criminal charges of fraud against you!
There is no “1031 like-kind exchange” rule allowed in CC like there is in real estate!
And if you hide your CC assets in a foreign account you are now risking severe financial penalties under the FBAR regulations if this report is not filed by you on an annual basis.
It is critical to use a 3rd party CC tax platform (such as Cointracker or Koinly) to pull all of your various CC exchange and wallet info into one place to facilitate proper tax reporting. For my tax clients this is non-negotiable, unless you only have CC in a Coinbase account. But for any CC traders/investors that have multiple exchanges & several wallets, you MUST use a third party crypto tax platform such as Cointracker or Koinly when working with me.
There will most likely be a fee that you must pay for the 3rd party CC tax platform; but some of them offer very nice advantages for the serious investor to get a look at their entire CC portfolio. If you contact me and become a tax client I can provide you a DISCOUNT code to use for the crypto tax platform I feel is the best one to use. And I may also be able to get you “white glove” service with a certain platform which could help you get all of your various exchanges/wallets connected to their platform (this is only for a small number of new clients, and once it is gone it is gone).
And I (or any other tax pro) will charge a separate CC tax prep fee that is over and above my normal tax prep fees.
CC tax reporting takes a significant amount of time, so for large traders this may be a substantial amount.
If you need multiple prior years of CC taxes prepared, please bring those to me via the STR client portal during the months of May-December.
We must work TOGETHER as a team to get your CC taxes prepared and in compliance – you cannot just send me the CC tax docs and expect me to finish them without your involvement.
There are many crypto tax planning areas to be considered – yet another reason to contact me in the off-season (May-December) so we can plan appropriately.
I look forward to helping you with your cryptocurrency tax needs!