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Cryptocurrency Accounting

How To Accept Cryptocurrency Payments At Your eCommerce Store

Cryptocurrency have been growing in popularity over the past 10 years, with the last 5 years gaining momentum into more mainstream communities. As cryptocurrencies continue to change the way we do business, it’s time to start considering accepting them at your store.

We have notably seen many major brands begin to accept cryptocurrency including Expedia, Whole Foods, Overstock and Mircosoft.

Cryptocurrencies serve many purposes includes a digital medium of exchange and a store of value. They are based on blockchain technology, a decentralized organizational method that is spread across several computers to ensure the integrity of transactional data. The most popular cryptocurrency is Bitcoin, but there are thousands of cryptocurrencies which you can accept and use.

The most practical way to accept these payment methods on your website are to use third party applications such as Coinbase Commerce or Bitpay.

These two exchanges integrate with Shopify a and allow you to receive payments then convert them into fiat currency for a fee. Once you sign up for the payment processor, you can use the merchant service function to convert the coins and withdraw them into your bank account.

Alternatively, you can choose to accept crypto without relying on a third-party service and accept payments manually. To do this, you’ll generate a Bitcoin address for each sale on your website and provide instructions for the amount of money people should send. I do not recommend this method unless you are experienced with cryptocurrency. I also do not recommend this method is selling large volumes since this will require manual invoicing.

It is important to understand both the cash flow considerations when accepting cryptocurrency as a form of payment as well as the tax consequences.  We have covered these topics in detail in our cryptocurrency blog and our definitive cryptocurrency tax guide.

Wrapping Up:

Business owners should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transactions.  It is important to consult with an experienced cryptocurrency and eCommerce CPA regarding your specific portfolio and/or business.

Here at Camuso CPA, we offer cryptocurrency and ecommerce tax and accounting services nationwide. Our team is highly experienced in cryptocurrency as one of the first CPA firms working in the space since 2016. We were the first CPA firm to accept cryptocurrency as a form of payment during 2017. Contact our team today to discuss your portfolio in detail here.

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Can You Deduct GAS Fees For Taxes?

If you are involved with cryptocurrency, you are probably all too familiar with gas fees. Payment in Ethereum gas fees are required for a variety of transactions that take place on the Ethereum blockchain including staking, airdrops, transfers, trades, yield farming and so on.

In many circumstances, these fees can be deductible for taxes but whether or not these fees will be deductible in your specific scenario will depends on the nature of your transactions and operations. Fees from other blockchains such on Avalanche, Solana, and so on will most likely be treated in the same manner.

The overall tax treatment of fees have not been specially addressed by the IRS. Taxpayers should rely on existing tax laws and take a conservative approach in how they treat fees for tax purposes. Generally, individuals will not be able to deduct fees against income but they will still offer a tax benefit in many scenarios. Business entities, in many circumstances, will be able to deduct fees as a business expense.

Trades

Gas fees incurred when you are trading one asset for another will be deductible for tax purposes. Any fees incurred when trading an asset will be added to the cost basis of the asset you are acquiring. This will lower your overall taxes in the future when you sell this asset.

Staking, Airdrops, Yield Farming

When you claim airdrops, staking rewards or yield farming rewards you will incur a gas fee. Any fees incurred when trading an asset will be added to the cost basis of the asset you are acquiring. This will lower your overall taxes in the future when you sell this asset.

Transfers

When you transfer assets, you will incur a gas fee. Unfortunately, these fees will not be tax deductible and the ETH that you spend for the fees will be treated as taxable sales.

Wrapping Up:

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transactions.  It is important to consult with an experienced cryptocurrency CPA regarding your specific portfolio and/or business.

Here at Camuso CPA, we offer cryptocurrency tax services nationwide. Our team is highly experienced in cryptocurrency as one of the first CPA firms working in the space since 2016. We were the first CPA firm to accept cryptocurrency as a form of payment during 2017. Contact our team today to discuss your portfolio in detail here.

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Tax Implications To Cryptocurrency Loans

Planning in advance to prepare for your cryptocurrency tax liabilities is crucial to ensure that you report your taxes accurately and pay the least amount of taxes as legally possible.

You need to ensure that you are not only properly reporting your transactions in the correct character and format and that your accounting calculations are accurate and verifiable but also that you have used every legal strategy available to you to minimize the taxes on your cryptocurrency gains.

Decentralized finance has quickly grown and it’s future is very bright . It’s important that you understand the tax implications of Decentralized Finance activities. Here we will cover tax implications for cryptocurrency loans.

Cryptocurrency loans are a valuable consideration for any tax plan due to the advantages it offers to retain your holding period and tax deferral opportunities. If you borrow using cryptocurrency as collateral without receiving a different token in return you don’t realize any tax on that transaction since you did not sell your cryptocurrency you just put it up as collateral. This will also allow you to maintain your holding period for your position in this asset if you are planning to hold it for long term capital gains rates.

It is important to understand that you cannot sell or exchange the collateral that you put up. On some platforms you can put up one cryptocurrency as collateral but then receive back a different cryptocurrency. This is a taxable event and should be avoided if tax deferral is your goal.

If you are on the other side of the transaction and lending cryptocurrency in return for interest income payments, you will have an income tax liability associated with this.  If the lending platform pays earnings directly from interest then this will be treated as ordinary income for tax purposes.

If the lending platform uses liquidity pool tokens and pays earnings by issuing their own token you may recognize a capital gain for this activity. This is because when you add to a liquidity pool your liquidity pool tokens will increase but not the asset balance that you are lending. Then when you convert your tokens back to the original asset, the cost basis will be subtracted from the proceeds you receive to arrive at your capital gain.

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transactions.  It is important to consult with an experienced cryptocurrency CPA regarding your specific portfolio and/or business.

Here at Camuso CPA, we offer cryptocurrency tax services nationwide. Our team is highly experienced in cryptocurrency as one of the first CPA firms working in the space since 2016. We were the first CPA firm to accept cryptocurrency as a form of payment during 2017. Contact our team today to discuss your portfolio in detail here.

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Tax Planning For Cryptocurrency

Planning in advance to prepare for your cryptocurrency tax liabilities is crucial to ensure that you report your taxes accurately and pay the least amount of taxes as legally possible.

You need to ensure that you are not only properly reporting your transactions in the correct character and format and that your accounting calculations are accurate and verifiable but also that you have used every legal strategy available to you to minimize the taxes on your cryptocurrency gains.

Start Tax Planning Well Before Large Sales

The first key to tax planning for cryptocurrency is timing. Most strategies and considerations need to be addressed before you sell any of your crypto assets. It is key to work with an experienced cryptocurrency CPA to tax plan for your portfolio well before you are planning to sell.

ST v. LT

One of the first basic tax considerations when planning for your portfolio is understanding the tax character of any protected sale. Any asset held over 365 days will receive a LT capital gains tax rate which is usually much more favorable than the ST capital gains rate. It is crucial to consider this for any assets you are planning to sell that are approaching this 365 day threshold.

Loss Harvesting & Wash Sales

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. This will give you a tax benefit because you will realize a loss on the sale while not changing your overall position in the asset since you repurchased it.

This is a great tax planning tool during bear markets.

Opportunity Zones

Using opportunity zones can be a beneficial strategy for deferring capital gains on sales of cryptocurrency.

The capital gains from the sale will have to be reinvested into an Opportunity Zone Fund within 180 days after the sale. If the capital gains are reinvested the taxes due are deferred until the earlier of the date on which the opportunity zone investment is sold or exchanged or Dec. 31, 2026.

Additionally, up to 15% of the deferred gain is permanently excluded from income if the opportunity zone investment is held for more than seven years.

Additionally, any post-investment appreciation in the QOF is permanently excluded from income if the investment is held at least 10 years.

Trust Structures

Using various types of tax advantaged trust structures can be a beneficial strategy for eliminating or deferring capital gains on sales of cryptocurrency.  There are many different types of tax advantaged trust structures that can be used depending on your specific facts and circumstances.

A full description on these types of trust are outside the scope of this article but two worth mentioning are Charitable Remainder Unitary Trusts and Deferred Sales Trusts.

These types of structures differ depending on the specific type of trust but common features of these set ups include contributing money to a trust, selling the cryptocurrency within the trust to avoid personal tax liability on gains then receiving an income stream from the trust for a predetermined time period.

The potential tax benefits are as follows.

  1. The sale or exchange of cryptocurrency is completely tax-free
  2. You only pay tax each year on the annual payment you receive from the trust. This payment would be taxed at favorable capital gains rates. Depending on the amount of your other annual income, this strategy will likely keep you in the lower capital gains brackets.

There are many technical considerations when tax planning for trust and cryptocurrencies that should be discussed directly with your CPA.

Cryptocurrency Income & Business Operations

If you are operating a business that accepts cryptocurrency there may be other tax planning considerations outside of this article which can benefit your operations. More to come on this in the future.

Wrapping Up:

If you are holding substantial cryptocurrency assets at a low cost basis and are looking for effective long term tax planning and estate planning strategies, Camuso CPA can help! Please feel free to give us a call for more information about cryptocurrency and other tax planning services. One of our friendly and knowledgeable representatives will be happy to answer any questions that you may have.

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transactions.  It is important to consult with an experienced cryptocurrency CPA regarding your specific portfolio and/or business.

Here at Camuso CPA, we offer cryptocurrency tax services nationwide. Our team is highly experienced in cryptocurrency as one of the first CPA firms working in the space since 2016. We were the first CPA firm to accept cryptocurrency as a form of payment during 2017. Contact our team today to discuss your portfolio in detail here.

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Cryptocurrency Tax & Accounting Due Diligence

Cryptocurrency taxes and accounting are crucial when it comes to protecting your assets and bottom-line from the IRS. Reporting your cryptocurrency transactions on your tax return is only your first step towards compliance with the IRS.

You need to ensure that you are not only properly reporting your transactions in the correct character and format to the IRS but you must also ensure that your accounting calculations are accurate and verifiable. It is also important to properly account for your cryptocurrency transaction due to the cumulative nature of cost basis tracking.

Below we go over some important due diligence steps to take when accounting and reporting your cryptocurrency transactions for taxes. It is important to work with an experienced cryptocurrency CPA like Camuso CPA when handling this process, the steps below are important to ensure the quality of your accounting and reporting when working with a professional.

Documentation

The first step to ensuring the integrity of your cryptocurrency accounting and tax filings is documenting your transactions. The first step in this process is downloading all of your transactions from all centralized exchanges and consolidating all decentralized transactions based on the addresses used. You should save these files in your records for at least 7 years.

After completing your cryptocurrency accounting your final documents should include gain/loss information that shows your detailed gain/loss for the relevant tax year. Additionally, your final documents should include that shows your detailed cost basis information for the relevant tax year. It is important that these data sets include an audit trail which shows where the source of each transaction came from based on your source records.

Wrong Accounting Methodology

After your documentation is in order the next step is ensuring you choose the correct accounting method to remain compliant with the IRS. Generally, we recommend FIFO for this. The explanation for this is outside the scope of this article but you should consult with a tax professional and understand the basis and tax implications regarding your accounting method selection.

Unmatched Transactions

After completing your calculation, you should review your gain/loss calculation in detail. To start this process, review the cost basis information for each sale, if any of your cost basis are 0 this will require further investigation. This usually indicates an issue with the calculation which could be related to missing transactions, incorrect valuations, or accounting errors. To address this you will have to review the facts and circumstances regarding the specific asset and sale that has a 0 cost basis.

Checking All Valuations

The next step in this process is to review the valuations assigned to the proceeds for each individual sale. You should review this to ensure that the fair market value you assigned to each sale to arrive at your total proceeds are accurate. If this is inaccurate it can result is an inaccurate gain/loss and cost basis.

Ending Balances Off

After completing your calculation, you should review your cost basis calculation in detail To start this process, review the ending total coin level balances of each cryptocurrency you hold against your actual holdings to ensure this balances are accurate. If this is inaccurate it can result is an inaccurate gain/loss and cost basis for future tax years. This usually indicates an issue with the calculation which could be related to missing transactions, incorrect valuations, or accounting errors. To address this you will have to review the facts and circumstances regarding the specific asset that has an inaccurate ending calculated cost basis.

Reporting Cryptocurrency

After completing your cryptocurrency accounting and due diligence you can then include your cryptocurrency transactions on your tax return. It is crucial that you report your transactions in the correct format. This is out of the scope of this article but keep in mind that investment income, staking income, mining income, business income and other sources of cryptocurrency transactions will get reported on different parts of the return, have different tax implications and informational requirements.  

Cryptocurrencies are in an unusual middle ground where the IRS is now cracking down on them, but even many licensed CPAs are struggling to understand the new tax law. So, to navigate, it’s important to not only find a professional in tax law, but one who is current on cryptocurrency tax law as well. Here at Camuso CPA, we have all the knowledge necessary to save you as much money as possible on your cryptocurrency tax returns. That puts us on the cutting edge of a brand new financial trend. When it comes to protecting your investments in the form of cryptocurrencies, Camuso CPA is one of the few CPA firms that can work with you to ensure you are compliant with tax law.

Wrapping Up:

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transactions.  It is important to consult with an experienced cryptocurrency CPA regarding your specific portfolio and/or business.

Here at Camuso CPA, we offer cryptocurrency tax services nationwide. Our team is highly experienced in cryptocurrency as one of the first CPA firms working in the space since 2016. We were the first CPA firm to accept cryptocurrency as a form of payment during 2017. Contact our team today to discuss your portfolio in detail here.

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IRS Summons Circle For Taxpayer Information

Cryptocurrency taxation has been a hot topic with the IRS for years. Despite popular opinion, the IRS has been monitoring cryptocurrency for quite some time. This is why the decision by the Internal Revenue Service (IRS) to seek information from Circle on all U.S. taxpayers who traded at least $20,000 worth of crypto between 2016 and 2020 should come as no surprise.

This is another step forward for the IRS is positioning itself to audit cryptocurrency taxpayers.

Most past actions by the IRS have been to provide further clarification on the tax guidance related to cryptocurrency transactions then taking actions to detect taxpayers who are not reporting their cryptocurrency activity.

The IRS has also recently announced they hired a cryptocurrency tax software company to assist in data analysis and tax calculations for audits of taxpayers with cryptocurrency.

In the past we have seen John Doe summons to collect data on taxpayers at cryptocurrency exchanges including Coinbase, Kraken and other major exchanges. Additionally, we have seen a question added to the top of the 1040 form in recent years asking if any time during the previous year, they received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency.

The best approach for crypto investors

The best approach for crypto investors is to seek professional guidance and consultation. Seeking the services of an experienced cryptocurrency CPA can help investors protect their assets and avoid criminal charges.

Wrapping Up:

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transactions.  It is important to consult with an experienced cryptocurrency CPA regarding your specific portfolio and/or business.

Here at Camuso CPA, we offer cryptocurrency tax services nationwide. Our team is highly experienced in cryptocurrency as one of the first CPA firms working in the space since 2016. We were the first CPA firm to accept cryptocurrency as a form of payment during 2017. Contact our team today to discuss your portfolio in detail here.

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How NFTs and Cryptocurrency Are Taxed

With the significant surge in popularity of digital marketing and non-fungible tokens (NFTs) recently, people are asking more and more questions about NFTs and cryptocurrency taxes. For the past few months, NFTs have been surging in popularity. Various platforms allow thousands of creators and artists to sell their work as NFTs. The following is a guide on how tax is imposed on NFTs. 

Taxation on NFTs

NFTs are taxed just like the other cryptocurrencies. NFTs act very similarly to some other types of properties such as real estate or cryptocurrency. If you are familiar with cryptocurrency tax, you will be able to understand NFT taxation easily. When you purchase an NFT this will establish your cost basis based on the purchase price. When you sell the NFT in the future, the sale price will be subtracted from the purchase price to arrive at your capital gain or loss.

If you are a creator the taxes will work differently for you. Usually, you will be taxed on the income you receive from selling the NFTs at ordinary income tax rates.

How Taxes Work For Creators:

If you are a creator, you will be taxed when you will sell those NFTs in the marketplace. When you sell these NFTs, you will be subject to income tax. Your earnings will be taxed as ordinary income. As a creator you can deduct any business related expenses realted to your business.

How Taxes Work For Investors:

Here, the taxes work quite differently as compared to the creator.

 If you are an investor, the taxes would be similar to that of cryptocurreny trading. For example, buying NFTs using the cryptocurrency and then selling them would generate profit, and ultimately all of the profits are subject to capital gains tax rules.

 

Exchanging NFTs for Cryptocurrency

Whether you are buying or selling NFTs you are usually exchanging them for Eth or another cryptocurrency. It is important to understand the cryptocurrency tax implications in addition to the NFT tax implications.

As an investor, if you exchange Eth or another cryptocurrency for an NFT that will trigger a taxable event for the sale of your cryptocurrency. Any time your exchange cryptocurrency for a good, service or other cryptocurrency you are creating a taxable event. Based on the current price of the cryptocurrency you are exchanging and your cost basis you will recognize a gain or loss when you exchange cryptocurrency for an NFT.

As a creator, if you sell an NFT for Eth or another cryptocurrency this can trigger two potential taxable events. The first as covered above will be that you will be taxed at ordinary income rates for the Eth you receive for the NFT based on the current fair market value. If you hold this Eth after selling the NFT, when you sell the Eth you will recognize a capital gain or loss based on the current value of the Eth and your cost basis at the time of recipet.

Wrapping Up:

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transaction, particularly NFTs.  It is important to consult with an experienced cryptocurrency CPA regarding your specific portfolio and/or business.

Here at Camuso CPA, we offer cryptocurrency tax services nationwide. Our team is highly experienced in cryptocurrency. We were the first CPA firm to accept cryptocurrency as a form of payment during 2017. Contact our team today to discuss your portfolio in detail here.

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IRS Hires Crypto Tax Software Company For Audits

Cryptocurrency taxation has been a hot topic with the IRS for years. The IRS has been monitoring cryptocurrency for years. This is why the decision by the Internal Revenue Service (IRS) to enforce a cryptocurrency taxes further did not come to many as a surprise. The cryptocurrency tax laws, are known to have been historically complex for cryptocurrency investors, miners and traders.

The IRS has recently announced they hired a cryptocurrency tax software company called TaxBit as a subcontractor to assist in data analysis and tax calculations for audits of taxpayers with cryptocurrency.

This is another step forward for the IRS is positioning itself to audit cryptocurrency tax payers.

Most past actions by the IRS have been to provide further clarification on the tax guidance related to cryptocurrency transactions then taking actions to detect taxpayers who are not reporting their cryptocurrency activity.

In the past we have seen John Doe summons to collect data on taxpayers at cryptocurrency exchanges including Coinbase, Kraken and other major exchanges. Additionally, we have seen a question added to the top of the 1040 form in recent years asking if any time during the previous year, they received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency.

This subcontract relationship with a cryptocurrency tax software company shows the next step that will allow the IRS to calculate and verify taxpayers capital gains calculations even if they have reported their transactions to ensure this is accurately reported.

The best approach for crypto investors

The best approach for crypto investors is to seek professional guidance and consultation. Seeking the services of an experienced cryptocurrency CPA can help investors protect their assets and avoid criminal charges.

Wrapping Up:

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transactions.  It is important to consult with an experienced cryptocurrency CPA regarding your specific portfolio and/or business.

Here at Camuso CPA, we offer cryptocurrency tax services nationwide. Our team is highly experienced in cryptocurrency as one of the first CPA firms working in the space since 2016. We were the first CPA firm to accept cryptocurrency as a form of payment during 2017. Contact our team today to discuss your portfolio in detail here.

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Cryptocurrency Tax Return Questions on Page 1

Cryptocurrency taxation has been a hot topic with the IRS for years. The IRS has been monitoring cryptocurrency for years. This is why the decision by the Internal Revenue Service (IRS) to enforce a cryptocurrency taxes further did not come to many as a surprise.

The IRS guidelines surrounding the filing of cryptocurrency taxes have left more people confused.  The issue is the ambiguous nature of information on how to fill the crypto declaration segment on page 1 of the IRS Form 1040. This section requires taxpayers to declare if they have been involved in any crypto-related transaction within the past year.

However, the IRS issued new guidance on March 2, 2021 (by updating Question 5 of its FAQs) stating that investors need not answer ‘yes’ to the question if they purchased cryptocurrencies with real currency.

This means that if you simply bought cryptocurrency with USD and never sold or exchanged it then you do not have to check yes to this question. This is because cryptocurrency transactions are only taxable if you exchange cryptocurrency for fiat, another cryptocurrency, for a good, or for a service.

The best approach for crypto investors

The best approach for crypto investors is to seek professional guidance and consultation. Since the IRS does not currently have a formal voluntary disclosure program for cryptocurrency holders, seeking the services of an experienced cryptocurrency CPA can help investors protect their assets and avoid criminal charges.

 Wrapping Up:

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transaction.  It is important to consult with an experienced cryptocurrency CPA regarding your specific portfolio and/or business.

Here at Camuso CPA, we offer cryptocurrency tax services nationwide. Our team is highly experienced in cryptocurrency. We were the first CPA firm to accept cryptocurrency as a form of payment during 2017. Contact our team today to discuss your portfolio in detail here.

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How Is Kentucky Offering Tax Breaks For Crypto Miners IN 2021?

The cryptocurrency tax laws, are known to have been historically complex for cryptocurrency investors, miners and traders. There haven’t been many legislations that are entirely dedicated to the cryptocurrency mining businesses. Several issues regarding the earnings, investments, savings, and taxation of the cryptocurrency mining industry haven’t been addressed by lawmakers in extensive detail.

However, things are now gradually changing and US lawmakers are trying to improve the legislation associated with the cryptocurrency tax and cryptocurrency mining businesses. In this brief article, we’ll take a look at how cryptocurrency earnings have been traditionally taxed so far. We’ll also discuss the new cryptocurrency tax breaks that have been legislated by the State of Kentucky and what is the driving force behind the new law.

General Tax Laws For Crypto Mining Earners

The cryptocurrency earnings have been classified and taxed as property. While these rules are easy to understand and follow due to their common practice, they haven’t been able to address some key issues regarding cryptocurrency mining.

In general, all expenses associated with a cryptocurrency mining operation including electric, hardware, software, wages, etc. are tax deductible.

Tax Breaks Offered By The State Of Kentucky

The state of Kentucky is giving tax breaks to cryptocurrency miners. According to a recently signed bill, cryptocurrency miners can get tax exemptions by investing at least 1 million dollars into the cooling systems of their plants. These cooling systems are integral to cutting down the energy utilization of cryptocurrency mining plants. This is a great opportunity to get additional tax benefits for investments into cryptocurrency mining operations.

You can expect further changes to various other taxation laws relating to cryptocurrency taxes and cryptocurrency mining.

Wrapping Up:

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transaction.  It is important to consult with an experienced cryptocurrency CPA regarding your specific portfolio and/or business.

Here at Camuso CPA, we offer cryptocurrency tax services nationwide. Our team is highly experienced in cryptocurrency. We were the first CPA firm to accept cryptocurrency as a form of payment during 2017. Contact our team today to discuss your portfolio in detail here.

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