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Top 5 Tax Tips for Cryptocurrency Investors, Traders and Miners

Here at Camuso CPA, we offer a wide array of tax services for investors including tax preparation and tax planning. Financial service 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.

Reporting Is The Taxpayers Responsibility

Most Cryptocurrency exchanges that you trade on will not provide 1099 reporting data. The exchanges that do provide this data like Coinbase or Gemini have historically only provided Form 1099-K which does not provide the relevant cost basis information required to accurately report your transactions for tax purpose and also does not reconcile multiple exchanges.

That means you need to work with an experienced cryptocurrency CPA firm like Camuso CPA to protect your assets and legally minimize your taxes. We will reconcile all of your exchange data and accurately report your cost basis and gain/loss to the IRS.

Documentation Is Key

Since cryptocurrency is taxed as property almost every cryptocurrency transaction is a taxable event which means documentation is key in order to provide your CPA with all the relevant information required to accurate analyze your cryptocurrency transactions.

Here’s what the typical crypto investor needs to provide to their CPA, this data can usually be downloaded from your transaction histories on exchanges. Create a complete list of all trades for that taxable year, including the following information. All these amounts must be calculated in USD based on the exchange rate at the time of the trade by your CPA:

  • Trade date
  • Type of Asset Purchased and Sold
  • How much it was paid for
  • How much it was sold for
  • The cost of doing the trade (fee)

Don’t Hide Trades

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.

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.

It is clear that, with the huge price declines in cryptocurrency markets during 2018, many people will be considering harvesting losses and reporting this for a tax benefit. If you did not report crypto activity up to now or tracked your cost basis improperly, those choosing to reveal losses this year will be at a high risk of audit and tax penalties. Taxpayers that have not previously reported will also need to report their crypto transactions every year going forward.

All Trades Are Taxable But There Is a Hidden Benefit

Since crypto to crypto trades are taxable investors need to be very aware when making trades during the year and work with a CPA on an ongoing basis to track their portfolio’s tax labiality for estimated tax purposes. We really saw this hurt investors during 2017 and hurt their portfolio when they were liquidating it to pay taxes on profits during the bull run in a bear market.

The good news is that since cryptocurrencies are generally classified as property, wash sale regulations should not currently be a concern for investors. This means investors can sell an investment to realize a tax loss, only to buy it back immediately thereafter at a bargain. Today, wash sales only apply to stocks and securities, so traders are operating in a gray area for now until further IRS clarification is issued. This is an area that we go over in detail with investors on an asset by asset basis to advise them on taking this position. We have saved investors millions of dollars in 2018 alone using tax planning strategies such as this.

CPAs Are Rushing Into The Industry

CPAs are late to the game but also rushing into the cryptocurrency space. As an industry leader in cryptotax services I have been able to observe how this niche sector is developing.

It is not out of the ordinary for me to get targeted with ads from various franchise organizations to “double my accounting fees” by offering crypto tax services with no prior experience. This catches me off guard.

I can only picture how investors are navigating this maze of service offerings and distinguishing from CPAs that have financial services experience and an understanding of crypto between CPAs that have just hopped on this bandwagon.

Analyzing financial transactions are a detailed process that can easily be plagued with costly errors that can impact multiple tax filing years 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.

Many CPAs are using a back offices from another company to actually analyze an investors’ portfolios and do not understand this process. 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.

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. Contact our team today to learn more about working with us and how we can protect your assets and legally minimize your taxes.

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Accounting Industry Rushing Into Cryptocurrency

CPAs are late to the game but also rushing into the cryptocurrency space. As an industry leader in cryptotax services I have been able to observe how this niche sector is developing.

It is not out of the ordinary for me to get targeted with ads from various franchise organizations to “double my accounting fees” by offering crypto tax services with no prior experience. This catches me off guard.

I can only picture how investors are navigating this maze of service offerings and distinguishing from CPAs that have financial services experience and an understanding of crypto between CPAs that have just hopped on this bandwagon.

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.

Many CPAs are using a back-offices from another company to actually analyze an investors’ portfolios and do not understand this process. 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.

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.

If you searching for experienced CPA firms to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services related to bitcoin transactions, assistance with properly reporting gains and income from cryptocurrencies on your taxes, cryptocurrency portfolio analysis, or any other tax and accounting service, Camuso CPA can help

If you searching for experienced CPA firms to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services related to bitcoin transactions, assistance with properly reporting gains and income from cryptocurrencies on your taxes, cryptocurrency portfolio analysis, or any other tax and accounting service, Camuso CPA can help

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Tax Implications of Paying Your Employees in Cryptocurrency

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

If you’re thinking about paying your employees in a cryptocurrency such as Bitcoin or if you are an employee interested in receiving it as a portion of your pay, there are a few tax implications you need to consider before doing so.

The IRS treats cryptocurrencies as property. Simply holding cryptocurrency, whether it has gained value or lost value, does not mean that you owe taxes. In order to owe taxes, you would have to sell cryptocurrency, trade for another cryptocurrency, or purchase something with it. These are known as taxable events.

This means that if a business uses cryptocurrency as a payment method for employees that there are multiple tax implications. Based on the company’s holding period and cost basis they will be exposed to capital gains liabilities when they use their assets to pay employees. They will still be able to report the employee’s payment as a business expense which is beneficial for taxes.

A taxpayer who receives digital currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the virtual currency is determined by converting the virtual currency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied.

According to the IRS, all payments paid to employees are subject to income withholding requirements regardless of what form of payment the business uses to pay the wage.  Therefore, the fair market value of an employee’s cryptocurrency earnings must be included on that employee’s W-2 form, and these wages will also be subject to federal income tax withholding, Federal Unemployment Tax Act, and Federal Insurance Contributions Act requirements that apply to property-backed payments.

Business owners who are exploring using cryptocurrencies to pay independent contractors and carry out business-to-business payments aren’t immune to information reporting requirements just because they’re using virtual currencies.  So if a company pays rent, salaries, annuities or other compensation using cryptocurrency transactions that are valued at $600 or more—and the recipient is not considered a tax-free entity—the company is required to report the fair market value of each transaction at the time of payment both to the IRS and to the recipient.  If you’re also making payments to independent contractors for services rendered, you would also need to be reported payments valued at over $600 on the contractor’s Form 1099-MISC.  Failure to do could result in hefty fines for your business.

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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How Does A Bear Market and Losing Trading Positions Benefit Cryptocurrency Investors

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.

Since cryptocurrencies are generally classified as property, wash sale regulations should not currently be a concern for investors. Today, wash sales only apply to stocks and securities, so traders are operating in a gray area for now until further IRS clarification is issued. This means investors can sell an investment to realize a tax loss, only to buy it back immediately thereafter at a bargain.

This can offer very large tax benefits to investors by allowing them to pay significantly less taxes on capital gains which can be offset by their wash sale trades.

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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Tax Planning For Cryptocurrency and Wash Sales – How Can You Minimize Taxes

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.

In our Experienced CryptoCPA Tax Topics & Guides segment, we are taking a more in depth approach in covering all things cryptocurrency, tax, real estate and finance.

Since cryptocurrencies are generally classified as property, wash sale regulations should not currently be a concern for investors. This means investors can sell an investment to realize a tax loss, only to buy it back immediately thereafter at a bargain. Today, wash sales only apply to stocks and securities, so traders are operating in a gray area for now until further IRS clarification is issued.

 

 

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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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Spending Cryptocurrency Can Be a Huge Tax Trap, Learn How

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 a taxpayer purchases s virtual currency and uses it to purchase something (trades the cryptocurrecy for a good or service), the IRS requires him to calculate a capital gain or loss on each transaction. Capital gains on personal-use property are reportable and subject to tax.

The AICPA recently asked the IRS for some equitable relief by adopting a “de minimus election,” which provides a $200 threshold for excluding capital gains income on personal transactions. This is not yet in effect and as a result, taxpayers are on the hook for tax liability with all cryptocurrency transactions.

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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Tax Planning For Cryptocurrency Miners

Miners are a critical part of the cryptocurrency ecosystem. New coins and bitcoin forks are being developed every day with the goal of making mining easier for both existing mining pools and new market participants. But now that an increasing number of individuals and businesses are receiving mining income, tax compliance and tax planning become an imperative consideration for any reputable operation.

Tax implications of mining cryptocurrencies

Cryptocurrency miners have two separate tax exposures. The first is the tax at the fair market value of the virtual currency on the day that it is mined into gross income. Generally, the net earnings from this activity will be exposed to self-employment tax.

The second is the capital gains which are due on the sale of bitcoins viewed as a capital asset. The basis price for the coins will be the fair market value on the date of acquisition. Capital gains will be due on the difference between that basis price and the eventual sale price.

When a miner sells their cryptocurrencies that they have mined, they will have to pay capital gains tax on any profit that they have made while owning them. The exception here is if bitcoins aren’t viewed as capital assets,but are instead viewed as inventory. This would be the case if a miner’s core business is selling cryptocurrencies. In that case, any gains on the bitcoins would be taxed as an ordinary gain or loss.

IRS Notice 2014-21 clarifies the treatment for bitcoin miners. Specifically, miners must recognize income for each bitcoin mined during the taxable year. The amount of income is equal to the market price of bitcoin on the day it is awarded on the blockchain. This also becomes the miner’s basis in the bitcoin going forward and will be used to calculate gain/loss in the future when the bitcoin is sold.

Protecting Your Assets and Minimizing Tax Exposure

The first major step in choosing your tax treatment is selecting a business entity for your operations. You have four main choices:

Sole proprietorship

Partnership

C corporation

S corporation

To determine whether the S corporation is the right entity structure for your business, you have to know how it compares to your other options. The two main benefits of operating your business as an S-Corporation is relief from double taxation, and savings on employment taxes. Tax planning and industry financial expertise is critical in this area.

If you plan to raise capital or own real estate as part of your mining operation this should also be considered during your entity structuring planning and may require establishing multiple entities.

Most miners use expensive hardware and substantial amounts of electricity to verify transactions on a decentralized blockchain network. Mining expenses, such as electricity, would not be included into basis. Instead, they would be deductible in the taxable year as an expense. Maintaining proper documentation is essential. Depreciation of the equipment used in mining will be the other largest tax deduction for miners.

If you searching for CPA firms i to assist you with reporting cryptocurrency mining 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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CFA 2019 Exam Includes Crypto And Blockchain Topics

According to Bloomberg, the Chartered Financial Analyst (CFA) examination has added cryptocurrency and blockchain to its curriculum. Candidates for this exam are generally expected to clock 300 hours of study time.

The exam, run by the CFA institute, has reportedly prepared over 150,000 financial sector professionals through its intensive 3-tiered program, which is now set to include crypto and blockchain as part of its Level I and II curricula.

Crypto and blockchain have now been added as part of a new section called ‘Fintech in Investment Management,’ for which the materials will be released this August in preparation for CFA’s 2019 exams.

The fact that the new CFA exams in 2019 will include cryptocurrencies and blockchain, is a sign that the digital assets have arrived in Wallstreet. While digital coins have decreased in value in 2018 and the real-world impact of blockchain ventures could ultimately transform the global financial system.

If you are 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.

Patrick Camuso, CPA is founder and owner of Camuso CPA, a Charlotte, NC based CPA firm consulting to cryptocurrency investors, miners and business nationwide.

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AICPA Requests Further Guidance From IRS on Cryptocurrency

The American Institute of Certified Public Accountants which is the world’s largest association of accounting professionals asked the IRS to issue immediate, updated guidance regarding the tax treatment of cryptocurrency transactions.  The first IRS tax guidance for cryptocurrencies was introduced March 2014, few CPAs have done comprehensive analyses of the record-keeping and enforcement challenges that will arise from the IRS designation of Bitcoin as property rather than currency.

The AICPA’s submission to the IRS includes suggested Frequently Asked Questions that address the following areas:

  1. Expenses of obtaining virtual currency
  2. Acceptable valuation and documentation
  3. Computation of gains and losses
  4. Need for a de minimis election
  5. Valuation for charitable contribution purposes
  6. Virtual currency events
  7. Virtual currency held and used by a dealer
  8. Traders and dealers of virtual currency
  9. Treatment under Sec. 1031
  10. Treatment under Sec. 453
  11. Holding virtual currency in a retirement account
  12. Foreign reporting requirements for virtual currency

The lack of guidance around the taxation of cryptocurrencies pose uncertainties to the taxation of cryptocurrency and blockchain technology transactions. Additional guidance is largely overdue. Our team along with industry participants are awaiting answers and clarification from the IRS.

Are you looking for a CPA in for cryptocurrency tax help? Give Camuso CPA a call today. We also offer a host of other tax services for your benefit. For more information on how our services can help you, please do not hesitate to give us a call at your earliest convenience. One of our friendly and knowledgeable representatives will be happy to answer any questions that you may have.

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Incorporating to Save Money on Cryptocurrency Taxes

With the new tax cuts, many people are scrambling to see if they can save money by incorporating, since the new corporate tax rate is much lower than on high income individuals. But how does that affect cryptocurrencies? Here at Camuso CPA, we offer cryptocurrency tax help in Charlotte. To help you better understand how incorporating can save money on cryptocurrency taxes, we thought we would go over the pros and cons of incorporating for your cryptocurrency tax returns here.

Pros

To reap the benefits of incorporating for cryptocurrency taxes, your business needs to be actively trading in cryptocurrencies. If that is the case, it can stand to benefit from incorporating in three main ways.

  • Incorporating can simplify reporting if you are an active trader. This is because when filing taxes on a personal level, every single cryptocurrency transaction must be recorded line by line. When you have hundreds or more of trades a month, this gets extremely time consuming. For corporations however, the reporting is much easier, and focuses more on the broader actual revenue generated than individual transactions.
  • There are potential fringe benefits that can be taken advantage of by incorporating. For instance, retirement accounts can be setup that allow significantly more contributions for a corporation than an individual is allowed. In fact, some of these accounts are set up to hold cryptocurrencies, so you can eliminate any unwanted transaction costs when saving with this new form of currency.
  • Finally, there is a potential to make a deduction on your tax return for Qualified Business income as the new changes for 2018 start to take effect. However, it is not clear yet whether this will apply to cryptocurrencies. Whether or not this will provide tax relief remains to be seen, but if the Qualified Business income applies to them, there is the possibility of significant savings.

Cons

With taxes, every decision has repercussions. There will always be downsides to consider when structuring a corporation for tax purposes. Here are some of those considerations to weigh when considering the benefits of incorporating to save money on cryptocurrency taxes.

  • When you incorporate, there will be two sets of tax returns to file instead of just one. There is one for the individual, and one for the corporation. However, if you are hiring out to a professional CPA firm to incorporate anyway, they will also be able to help you with your tax returns as well.
  • Filing as a corporation means that to trade, you must do so with an institutional account. These accounts limit the number of exchanges that you can perform and qualify for.
  • If your cryptocurrency mining strategy includes long term strategies, you may be losing money by incorporating. This is because long term capital gains rates are not as high as they are for taxes on corporate income.
  • If you incorporate, there will be a year end close out. This means you must treat all your cryptocurrency inventory as if it was already sold. For individuals, this is only the case when they sell or swap out their cryptocurrencies.
  • There is also the risk of double taxation when you set up as a C corporation. That is because a C corporation pays their own corporate taxes, and then issue dividends which are themselves taxed. This overall rate needs to be compared to the individual rate to ensure money is not being lost.

Hopefully you feel a little bit more knowledgeable about incorporating to save money on cryptocurrency taxes. If you are looking for cryptocurrency tax help in Charlotte, then Camuso CPA is the firm to call. For more info, please don’t hesitate to reach out. We’ll be happy to provide any information that you may need.

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