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Form 1099-K: What Cryptocurrency Investors Need to Know in 2019

Here at Camuso CPA, we offer a wide array of tax and accounting services for cryptocurrency investors and traders including tax preparation, tax planning and portfolio reconciliations. Camuso CPA strives to deliver useful insights and offer relevant explanations about the latest tax and financial topics.

The IRS has demonstrated it intends to enforce existing 1099 reporting rules on cryptocurrency exchanges, but it has not followed up by providing clarity regarding those rules. For instance, trading platforms might have to send 1099-B forms to users who exchange one type of coin for another, but they’re not explicitly required to send the forms the way brokers are for stock trades. Generally, requirements surrounding the 1099-B remain unclear for cryptocurrencies.

The IRS has already forced a Coinbase to report users on form 1099-K, the same form home-share and ride-share companies use to report transactions with homeowners and drivers. The federal reporting threshold for the 1099-K is currently set at $20,000 and 200 transactions per year.

The 1099-K lacks the cost basis details required to capture the capital gain/loss calculation that would ultimately determine taxable income and tax revenue for the IRS.

If people are transacting in digital currency, it’s important that anyone understands that there’s a tax obligation on their part. Whether they’re paying their taxes or whether they’re day traders– it doesn’t matter. Any time there is a transaction with digital currency, it’s important that people understand there is a tax liability.

The reason that 1099-K are not usually accurate is because they do not report the relevant cost basis data necessary to accurately calculate capital gains/losses. Additionally, this form does not reconcile trades across multiple exchanges. Our team at Camuso CPA works with cryptocurrency investors and traders on a daily basis to accurately calculate all of your cryptocurrency transactions in order to properly report them for tax purposes.

Properly tracking and reporting your cost basis is imperative to protect your assets from penalties and interest as a result of underreporting. When analyzing cryptocurrency portfolios our starting point is the last ending tax year’s cost basis for each asset which is considered along with all relevant transactions from the current year to arrive at both an ending tax liability and ending cost basis for each respective asset you are holding. This means that if you did not track your cost basis correctly in prior years or did not report it that your portfolio calculation for years following that will also be incorrect. This can cause cascading and costly issues across multiple years of tax returns in many cases.

Analyzing financial transactions are a detailed process that can easily be plagued with costly errors if you do not have a structured process and workflow in place. Analyzing crypto transactions adds another layer of complexity due to the nascency of this industry and the reporting standards from exchanges. Without the proper experience and training it is very easy for well-meaning accountants to make costly errors related to the portfolio calculations and advisory they provide investors.

Be careful and do you due diligence. At the end of the day your tax return is your responsibility and it is your job to work with an experienced CPA firm to protect your assets. I would suggest that investors work with a CPA that not only understands and invests in crypto but also a CPA that has a strong background in financial services.

If you searching for CPA firms to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from virtual currencies on your taxes, cryptocurrency portfolio analysis, or any other service provided by a certified accountant, Camuso CPA can help. We are industry leaders in cryptocurrency tax services and you will not find a better team of CPAs to assist  you with your tax needs.

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Why Cryptocurrency Investors Cannot Use Popular Tax Preparation Software

Here at Camuso CPA, we offer a wide array of tax and accounting services for cryptocurrency investors and traders including tax preparation, tax planning and portfolio reconciliations.

Virtual currency exchanges signed up millions of new users in 2018. However, cryptocurrency became an increasingly mainstream investment last year, and more and more people started trading at high volumes. By the end of the year, some of the more active cryptocurrency investors had made thousands of trades.

The IRS requires investors to submit records showing every time they sold or spent their virtual currency assets. For high volume traders, this can add up quickly.

As the cryptocurrency investment community gets ready for tax season, some high-volume investors are finding they are no longer able to self-prepare. This is because many of the existing tax preparation software limits the number of transactions you can report. TurboTax Online can only accept up to 500 transactions per account, and the company warns that online performance is likely to go down as more information is uploaded.

Camuso CPA offers the highest-quality tax advice and planning services specifically focused on the needs of cryptocurrency investors.  The tax laws are changing, and the IRS is focusing on the crypto investors. Cryptocurrency investors need sound tax advice from a trusted and experienced CPA.

If you searching for CPA firms to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from virtual currencies on your taxes, cryptocurrency portfolio analysis, or any other service provided by a certified accountant, Camuso CPA can help.

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What To Do If You Have Not Reported Your Crypto Trades On Last Year’s Tax Return

Here at Camuso CPA, we offer a wide array of tax services for investors including tax preparation and tax planning. Financial service and technology companies are transitioning from employee driven revenue models to information driven revenue models. Camuso CPA strives to deliver useful insights and offer relevant explanations about the latest tax and financial topics.

According to the personal financial service Credit Karma, only about 0.04 percent (or 100 citizens out of 250,000) of United States citizens reported their cryptocurrency transactions to the IRS as of February 13.

Back in March of 2014, the IRS began providing some guidance for the taxation of Bitcoin, one of the most popular and mainstream cryptocurrencies. Because of these guidelines, cryptocurrencies are treated as property rather than currency.

Like all taxed property, when you report cryptocurrency to the IRS, what you owe will be based off of the price you bought it at, the price you sold it at, and the change in value between when you bought and sold it. Many experts believe this is not the ideal designation for cryptocurrencies,and may even become a deterrent in their adoption.

The IRS can go back up to three years to prosecute cases of tax evasion, and in cases where they find substantial error, they can decide to go back up to six years or more. If you did not report your cryptocurrency transactions properly in prior years the best course of action is to file an amended tax return.

Step 1: Calculate Your Tax Liability

When preparing your tax return, you are going to have to figure out your taxable income from cryptocurrencies for the year. This involves figuring out how much of your crypto assets were converted into non-crypto assets like cash or goods and services as well as other cryptocurrencies. Your cryptocurrency holdings aren’t taxable. Anytime you sold cryptocurrency or used it to buy something, have capital gains exposure.

You’ve already got records of most of those transactions, either on the blockchain or from your wallet provider, but converting it to dollars can be a real hassle since you’ll need to run the value of the cryptocurrency against the price of the crypto at the time of the transaction. First thing’s first, you’ll want to download all transaction data from the exchanges you use, which are usually available as CSV files. Some exchanges like Coinbase send users form 1099-K if they have received at least 20,000 US dollars cash sales of crypto related to at least 200 transactions in a calendar year. However, if you don’t use an exchange, do your best to document every transaction.

If doing cryptocurrency tax is proving to be a challenging feat, you should consider enlisting the services of a qualified CPA at a  professional tax firm such as Camuso CPA.

Step 2: Amend your return

Once you have determined your capital gains liability, you should download a current IRS Form 1040X, Amended U.S. Individual Income Tax Return. This form comes with easy-to-follow instructions and requires you to only include new or updated information.

Step 3: Mail in your amended return

After preparing your amended tax return to reflect your cryptocurrency transactions they will be mailed to the IRS along with all applicable tax payments.

While paying taxes can at times be painful, it is very important that you include your crypto-trading activity with your tax return. A lot of traders are convinced that because of the anonymous, decentralized nature of Blockchain and crypto transactions, that there is no way for the government to see or know that they are making money trading/buying/selling cryptocurrency. Unfortunately for these people, this is just not true. The Blockchain is a distributed public ledger, meaning anyone can view the ledger at anytime. Figuring out an individual’s activities on that ledger essentially comes down to associating a wallet address with a name. You can bet that the IRS is only gearing up to become proficient at doing that.

Ultimately, if you choose not to file your gains/losses, you will be committing blatant tax fraud to which the IRS can enforce a number of penalties, including criminal prosecution, five years in prison, along with a fine of up to $250,000.

If you searching for CPA firms to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from virtual currencies on your taxes, cryptocurrency portfolio analysis, or any other service provided by a certified accountant, Camuso CPA can help.

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What To Do If You Still Have Not Reported Cryptocurrency Taxes This Year

With an exponential gain in value and thousands of businesses now accepting it as a form of payment, Bitcoin has quickly become one of the trending topics throughout the country. While there are various types of cryptocurrency out there, Bitcoin is currently the most popular form of digital currency (also known as virtual or cryptocurrency) throughout the world and is able to be exchanged for U.S dollars, Euros, and other real currency. In addition, Bitcoin can be traded for other virtual currencies, such as Ripple or Ethereum currency.

Whether people use cryptocurrencies to pay for products and services or strictly for investment purposes, they may not be aware that they have a possible taxable impact. If you have not reported your cryptocurrency taxes this year, you are not alone. In this article, we are going to review cryptocurrency and taxes, as well as what to do it you still have not reported them.

Before diving into the details of digital currency and taxes, we wanted to ensure our readers that while this article provides helpful and detailed information, it does not constitute professional financial counsel and should not be used as a replacement for tax advice from professional CPA firms. As such, we recommend reaching out to local CPA firms for individualized service that is tailored to your unique tax situation.

Do You Have To Pay Cryptocurrency Taxes?

In the past, many cryptocurrency investors pocketed profits and avoided taxation by selling virtual currency and putting the money made back into other digital tokens. This method, and loophole so to speak, is known as a like-kind exchange. However, with the value of cryptocurrency taking off this past year, along with the profits of investors, the IRS is holding it down come tax season. In addition to closing this loophole that many crypto holders used, the IRS has stated that cryptocurrency is considered property and that selling digital currency should be reported as a capital gain or loss. But what does this mean? Well, this means that selling certain virtual currencies in exchange for another virtual coin, or even using cryptocurrency to buy goods and services, is considered taxable and therefore should be reported come tax season. It is mandated by law that you pay taxes on those earnings.

What Happens If You Do Not Report Cryptocurrency Capital Gains?

Some cryptocurrency investors, despite the IRS’s warnings, still choose to hide their profits by not reporting their capital gains from virtual currencies. This is no surprise, especially after a past survey revealed that over 35 percent of cryptocurrency owners claimed they do not plan on reporting any gains or losses on their tax return. What many investors in this percentage may not be aware of is that not reporting their capital gains and losses is a form of blatant tax fraud. Purposefully hiding profits and failing to report capital gains can enable the IRS to enforce numerous penalties, such as criminal prosecution, which is generally used in more extreme cases that involve larger profits and capital gains. Those that commit this tax fraud can potentially face up to five years in prison. What’s more, there is generally a fine up to $250,000. Similarly, crypto investors that purposely file a false tax return to hide capital gains may have to pay a $250,000 fine, as well as face up to three years in prison.

Of course, keeping track of all of the transactions made with virtual currency is not always easy. There are not any promises that distributed digital currency exchanges are going to send a Form 1099 that details your trades as well as your profits and losses. Not to mention, if virtual coins were used to pay for goods and services, that is a taxable transaction that you will have to handle entirely on your own. While crypto transactions can be complex, the IRS and government fully expect us to comply with the set tax guidelines for cryptocurrency. Failing to do so can lead to further complications and issues down the like.

What If You Didn’t Report Capital Gains From Cryptocurrency?

Failing to report your capital gains is something that happens more often than people think, whether it is accidental or purposely. However, reporting these gains is the law and should be done to avoid any trouble. If you failed to report any income or capital gains on your taxes, or if you are uncertain whether or not you compiled within the guidelines set by the IRS, there are certain steps you can take to reduce the risk of being fined, or worse, facing criminal penalties. The right thing to do in this situation is to file your tax return immediately and pay as much tax owed as possible to avoid any additional penalties. While it is dependant on which reporting requirements you are subject to, in addition to the nature of the noncompliance, if you did not report your capital gains it may be best to:

  • Create a corrected Form W-2 using Form W-2c if you paid people with cryptocurrency
  • File a corrected Form 1099-MISC if you paid independent contractors with digital currency.
  • File an FBAR, or a Report of Foreign Bank and Financial Accounts to disclose foreign digital currency wallets.
  • Enroll in the Offshore Voluntary Disclosure Program to help reduce any potential fines and penalties and avoid jail time.
  • Get help from a local tax consultant.

While taking these steps can potentially help reduce any fines and penalties, or even protect you from criminal prosecution, if you still have not reported your cryptocurrency income and capital gains, it is vital that you discuss your situation with an experienced tax CPA that specializes in Bitcoin and other digital currencies. If you have questions about reporting virtual currencies on your taxes, a certified CPA should be able to assist you.

What Happens If You Owe and Do Not File or Pay Your Taxes?

When your taxes are late or not paid, the IRS will assess a  failure-to-pay penalty. This penalty goes into effect after the regular due date. Typically these penalties are a certain interest charge of the balance due for each month or part of a month you are late.

Once the IRS discovers that your taxes are late, they will begin to send you computer paragraph (CP) notices. These notices will show how much you owe and demand immediate payment. If no actions are taken, the notices will continue to pop up in your mailbox for two to six months. If you avoid the notices and still do not pay the owed taxes, the following can occur.

Tax Levy

When the IRS seizes your assets, it is known as a tax levy. A tax levy only happens when all forms of communication and arrangements are ignored. The final notice will be sent at least 30 days before further action is taken.

Wage Garnishment

A wage garnishment, also known as a wage levy, is when the IRS contacts your employment provider and demand a portion of your paycheck. This will occur during every pay period until the taxes are paid in full or a payment agreement with the IRS is reached.

Bank Levy

A bank levy is when the IRS contacts your bank. When this happens, your bank will instantly freeze your accounts so you are unable to take money out. If arrangements are not made, the bank will send money to the IRS about three weeks later. This of course is something that shouldn’t be taken lightly.

Asset Seizure

The IRS has the ability to seize various assets like vehicles, houses, boats, and other assets if the owed taxes are not paid and an agreement has not been reached. This is something you will want to avoid, as getting seized property back can often be a long and difficult process.

Passport Revocation or Suspension

Many people don’t know this, but the IRS can revoke or suspend the passports of delinquent taxpayers who owe more than $50,000 in taxes (including interest and other non-payment penalties). Not to mention, the State Department will likely not issue or renew your passport if you owe more than 50K.

Criminal Prosecution

If you continue to file a tax return year after year, or you avoid paying the taxes that you owe you could be faced with criminal charges. Criminal prosecution is typically tied to tax evasion or tax fraud and since the government prefers working with non-compliant taxpayers. Since proof of intent to defraud is hard to prove, the IRS looks will generally search for patterns of abuse before taking any case to a criminal investigation

Again, if you fail to pay your taxes, most of these penalties and negative consequences can be prevented by working with a tax professional or the IRS directly.

 

If you searching for local CPA firms in Charlotte to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from virtual currencies on your taxes, cryptocurrency portfolio analysis, or any other service provided by a certified accountant, Camuso CPA can help.

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Cryptocurrencies as Property & Why People Haven’t Been Reporting

Here at Camuso CPA, we offer cryptocurrency tax services in Charlotte. Cryptocurrencies are an exciting new currency medium that is fast gaining popularity. However, as a new monetary medium, there is a lot of grey area come tax season. The last thing any good investor wants is to be scrutinized by the IRS, and that is fast becoming a real possibility as cryptocurrencies become more mainstream. Here, we will go over why many people haven’t yet reported their cryptocurrency transactions to the IRS, and why they should.

Why haven’t people been reporting their cryptocurrencies?

According to the personal financial service Credit Karma, only about 0.04 percent (or 100 citizens out of 250,000) of United States citizens reported their cryptocurrency transactions to the IRS as of February 13. The Tax General Manager of Credit Karma, Jagjit Chawla, did not express surprise at this low number, stating that people with more convoluted tax situations (like those performing cryptocurrency transactions) generally file later in the season. However, he added that the numbers did seem low considering how mainstream cryptocurrencies have become.

Cryptocurrencies as property

Back in March of 2014, the IRS began providing some guidance for the taxation of Bitcoin, one of the most popular and mainstream cryptocurrencies. Because of these guidelines, cryptocurrencies are treated as property rather than currency. Like all taxed property, when you report cryptocurrency to the IRS, what you owe will be based off of the price you bought it at, the price you sold it at, and the change in value between when you bought and sold it. Many experts believe this is not the ideal designation for cryptocurrencies, and may even become a deterrent in their adoption. Trader Brandon Williams, for instance, told CNBC that he thought it would be better to treat cryptocurrencies as currency.

In fact, Williams also argued that the small amount of cryptocurrency traders who have filed them in their taxes is due specifically because of the difficulties of treating cryptocurrencies as property rather than currency. For instance, he states that if a person makes more than two trades a day, they can expect to spend three to four hours every two weeks just tracking gains and losses while taking into account volumes and volatility.

With such a laundry list of tasks necessary just to file taxes properly, it’s no wonder most cryptocurrency traders haven’t filed yet. However, they must file if they don’t want to be audited by the IRS. Due to the novel and complicated nature of cryptocurrencies, the best and most efficient way to ensure you have your taxes done properly is to hire a professional CPA knowledgeable about cryptocurrencies.

If you are looking for qualified crytpocurrency tax services in Charlotte, Camuso CPA can help! Please feel free to give us a call for more information about our cryptocurrency and other tax services. One of our friendly and knowledgeable representatives will be happy to answer any questions that you may have. We look forward to hearing from you!

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1099-K From Coinbase: What To Do

Here at Camuso CPA, we offer cryptocurrency tax help in Charlotte. Cryptocurrencies are a new monetary medium that are taking the world by storm, and are becoming more widely accepted each and every day. Unfortunately, come tax season, that can leave earners in the dark with how to report income from this new currency medium. That is where we come in! We have the knowledge base and experience necessary to navigate the tricky tax regulations for cryptocurrencies. For more information, feel free to give us a call. In the meantime, we’ll go over your 1099-K from Coinbase, and what to do with it.

What is a 1099-K?

A 1099-K is a form used for tax purposes to report both credit card and other third party payments that you received during the last tax year. Any third party payments made for over 20,000 dollars, or that has made 200 or more transactions, must legally be reported on a 1099-K. If you have been using the cryptocurrency market Coinbase, they should send you a 1099-K once you meet those requirements.

Your 1099-K doesn’t include all pertinent tax information. For instance, the gross amount reported does not include adjustments, gains, or losses that may need to be reported to the IRS. Put another way, the 1099-K lists the dollar amount and date of each cryptocurrency transaction. Because it only lists these totals, it cannot be used to determine how much you will need to pay in capital gains taxes.

What is I didn’t get a 1099-K from Coinbase?

If you did not meet the requirements listed above, then Coinbase did not send a 1099-K. However, this does not mean that you do not have to report your capital games come tax season. Any and all cryptocurrency investments, as well as the spending of cryptocurrencies on goods and services, are subject to taxation.

Reporting Cryptocurrency

To report cryptocurrency, you need to figure out your cost basis, which is the amount you paid for the cryptocurrency when you purchased it. Like almost all capital assets, the tax rate depends both on the price you acquired and sold your cryptocurrency for, but also the time that elapsed between buying and selling, and the changes in the cryptocurrency value during that time. While some investors do try to do their own cryptocurrency taxes, the regulations are still being worked on, and are constantly changing. This can create problems with your taxes, and nobody wants to deal with problems when it comes to the IRS. Instead, you can hire out to a professional CPA who specializes in cryptocurrencies, like you’ll find here at Camuso CPA.

Want cryptocurrency tax help in Charlotte? We can help! Please feel free to give us a call at your earliest convenience for more information about how our tax services can benefit you. We offer many other CPA services for you to take advantage of as well. One of our friendly and knowledgeable representatives will be happy to answer any questions that you may have.

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Real Estate Divestment Tax Strategy: Charitable Remainder Unitrusts

For many individuals and investors, real estate represents the largest portion of their net worth. Real estate has been a popular investment tool both for income and long-term appreciation. Individuals or businesses intending to divest real estate have several options.

These include outright sale or donation, bequest, bargain sale, charitable gift annuity, charitable remainder trust and retained life interest. Some of the alternatives provide an income stream and may result in charitable tax deductions and the avoidance of capital gains tax.

WHAT IS A Charitable Remainder Unitrusts?

Charitable remainder unitrusts can be an effective tool for converting real estate into higher income producing assets. Charitable remainder unitrusts may accept real estate as an asset, and then pay the net income generated by the property to the trust beneficiaries or sell the property and then pay a fixed percentage of the value of the assets.

A charitable remainder trust is an irrevocable trust that provides for and maintains two sets of beneficiaries. First is the income beneficiary. The income beneficiary receives a set percentage of income from the trust for life or a term of up to 20 years. The second is the charitable beneficiary. This could be one or more charitable organizations that receive the principal of the trust after the income beneficiaries pass away.

A CRUT can sell a property, reinvest the proceeds into a diversified portfolio of securities, and pay a percent of the trust value, all without any capital gains tax liability for the donor. This is a very useful tool to strategically minimize real estate taxes.

BENEFITS

Since the first beneficiary is the income beneficiary, the amount of income generated is of importance to the donor. The amount of income depends upon the payout percentage chosen and the amount of income generated within the trust. The remainder of the trust must be at least 10 percent of the fair market value of the assets transferred to the trust. That market value is determined at the time of transfer and based on the original amount of the appraised value.

The amount paid out to the income beneficiary can be 5 percent to 50 percent of the trust funds each year as long as the appropriate amount remains in the trust for the charitable beneficiary. A higher payout percentage will lower the charitable income tax deduction.

A charitable remainder trust is outside of the estate and additional assets can be added after it is established. The charitable deduction available depends on the type of property contributed and the type of charity named as the charitable beneficiary. Any deductions not used in the year of contribution can be carried forward five years.

Charitable Remainder Trusts aren’t something a investor can do internally, but rather require a CPA.

Here at Camuso CPA PLLC, we do have the ability to offer charitable remainder unitary trusts strategies along with other powerful tax planning tools to our clients. If you are interested into how this service might benefit your business, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.

Your personal and business finances are the foundation of your success. Contact Camuso CPA today to build your dedicated financial team: https://www.camusocpa.com/contact/#/

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What Advisors Are Not Telling You – Unlock Cash Flow With This IRA Investment Opportunity

Many individuals and investors are unaware of their accessibility to options that provide them with control over the IRA investments. If a substantial amount of your life savings are locked up in a retirement account this can provide a great opportunity to make a large investment in a  non-traditional investment vehicle.

Generally, major financial institutions that manage most U.S. retirement accounts don’t see the profit in offering real estate or nonpublic traded assets in retirement plans as this would create a substantial administrative burden among other considerations. This leads to self-directed IRAs, which are IRAs where the custodian of the account allows the IRA to invest into any investment allowed by law, to become widely overlooked as a viable option.

When employing this investment strategy it is crucial to ensure you have a truly self-directed retirement fund with an independent trustee or custodian. Many plans may appear to be self-directed but limit choices to a custodian’s list of pre-approved investments.

These investments typically include real estate, promissory notes, precious metals, and private company stock.

Under current law, a retirement account is only restricted from investing in the following:

  • Collectibles such as art, stamps, coins, alcoholic beverages, or antiques
  • Life insurance
  • S corporation stock
  • Any investment that constitutes a prohibited transaction
  • Any investment not allowed under federal law

Self-directed retirement accounts are exposed to prohibited transaction. The rules detail restrictions regarding whom your IRA may transact with.  Prohibited transaction rules restrict your retirement account from engaging in a transaction with a disqualified person.

Disqualified persons include:

  • The account owner
  • Spouse
  • Children
  • Parents
  • Business Partners

Consult with a trusted CPA before executing investment decisions or initiating any substantial changes to your investment plans.  CPAs know your finances better than any other advisor and should have the expertise and network to offer valuable, preemptive recommendations.

Investors and business owners of all types should look for an advisor that serves as a partner; an ideal CPA is a financial expert with companies within your industry that can provide ongoing financial and business advice when you need it most.

Camuso CPA PLLC’s focus and specialization delivers a unique perspective on best industry practices to provide the most value to clients.

Contact us today for financial and tax planning and get your finances in order: https://www.camusocpa.com/contact/#/

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American Bar Association (ABA) Section of Taxation Ask IRS to Create Safe Harbor for Cryptocurrency Hard Forks

Here at Camuso CPA, we offer cryptocurrency tax services in Charlotte to clients across the country. Cryptocurrencies are an exciting new currency medium that is fast gaining popularity. However, as a new monetary medium, there is a lot of grey area come tax season. The last thing any good investor wants is to be scrutinized by the IRS, and that is fast becoming a real possibility as cryptocurrencies become more mainstream. Here, we will go over why many people haven’t yet reported their cryptocurrency transactions to the IRS, and why they should.

The American Bar Association (ABA) Section of Taxation has formally asked the US Internal Revenue Service (IRS) to create a safe harbor for investment gains realized from cryptocurrency hard forks.

In the letter the ABA noted that several major developments have occurred in the cryptoasset space since 2014 when the IRS first provided guidance on how the agency treats cryptocurrency investments for federal tax purposes

Chief among the Section’s concerns is a need for clear guidance on how investors should report gains associated with hard forks, which cause a blockchain to split into more than one version and provide current coin-holders with funds on both chains.

Since US tax returns are due in less than a month, the Section recommended that the IRS adopt a “temporary rule, in the form of a safe harbor” for taxpayers who received funds from hard forks.

According to the Section’s proposed language, the hard fork would constitute a taxable event, but the initial value of the forked coins would be $0.

Consequently, investors would not have to pay taxes on the market value of the coins unless they later sold or otherwise disposed of them, at which point they would be taxed at full market value as capital gains — not ordinary income.

CRYPTOCURRENCIES AS PROPERTY

Back in March of 2014, the IRS began providing some guidance for the taxation of Bitcoin, one of the most popular and mainstream cryptocurrencies. Because of these guidelines, cryptocurrencies are treated as property rather than currency. Like all taxed property, when you report cryptocurrency to the IRS, what you owe will be based off of the price you bought it at, the price you sold it at, and the change in value between when you bought and sold it. Many experts believe this is not the ideal designation for cryptocurrencies, and may even become a deterrent in their adoption.

With such a laundry list of tasks necessary just to file taxes properly, it’s no wonder most cryptocurrency traders haven’t filed yet. However, they must file if they don’t want to be audited by the IRS. Due to the novel and complicated nature of cryptocurrencies, the best and most efficient way to ensure you have your taxes done properly is to hire a professional CPA knowledgeable about cryptocurrencies.

If you are looking for qualified crytpocurrency tax services, Camuso CPA can help! Please feel free to give us a call for more information about our cryptocurrency and other tax services. One of our friendly and knowledgeable representatives will be happy to answer any questions that you may have. We look forward to hearing from you

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