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Cryptocurrency Tax

Cryptocurrency Taxes & Decentralized Finance, Tax Guide To Trading, Lending, Borrowing

The cryptocurrency industry, and as a result, cryptocurrency taxes are constantly evolving. Decentralized Finance (DeFi) is a rapidly growing area of cryptocurrency that provides access to financial services, including trading, borrowing, and lending, without middleman like traditional financial institutions. This has provided many financial options for traders and long-term holders.

As with any evolution of cryptocurrency transactions, it is important to understand the tax implications of Decentralized Finance activities. Cryptocurrency tax is generally a tough topic for many investors and even tax professionals. Since the IRS has not given specific guidance for DeFi, this article is based existing cryptocurrency tax guidance and our interpretation of current tax laws.

If you are not familiar with the taxation of cryptocurrency transaction, read our Cryptocurrency Tax Guide before reading this article on the tax implications of various DeFi transactions.

How To File Cryptocurrency Taxes for Your DeFi Transactions

Our team at Camuso CPA can import data from Decentralized Finance platforms to calculate your interest, lending income, capital gains and losses. All that is required to start this process to the have the ETH addresses that were used for your transactions.

Cryptocurrency Tax Advantage & Disadvantages for DeFi Transactions

There are many tax benefits to using DeFi that you will read throughout this article as we cover different facets of decentralized finance. Some of the most notable benefits include borrowing against your cryptocurrency as collateral to maintain tax holding periods, avoid triggering taxable events by borrowing, rebalancing portfolios without triggering taxable events and favorable tax treatment with some lending protocols treated as capital gains.

There can also be potential drawbacks to Defi including unexpected income generated from token distributions and taxable events triggered wihen minting tokens.

Cryptocurrency Lending: Providing Cryptocurrency In Return For Interest

If you lend cryptocurrency or contribute it to a lending platform you will be liable for income that you earn for lending the cryptocurrency. Lending your cryptocurrency does not trigger a taxable event as if you sold your cryptocurrency, but the income you generate will be taxable.

The income you earn usually will be taxed as ordinary income but can also be taxed as capital gains depending on the facts and circumstances of the platform you are using.

If you are using Liquidity Pool tokens, these are scenarios where you may be liable for capital gains rather than ordinary income. This is due to the nature of liquidity pools, when you add or remove liquidity the transaction is structured like a token swap rather than income.

When transactions as taxed as capital gains this can offer potential tax benefits. The benefits include, being able to offset capital gains with losses and holding for long-term periods to receive favorable tax rates.

It is important to consult with an experienced cryptocurrency CPA regarding each individual Defi Platform and their tax treatment.

Cryptocurrency Borrowing: Receiving Loans for Cryptocurrency as collateral

Cryptocurrency loans offer great tax advantages for investors that are seeking liquidity without realizing taxable events or liquating their holdings. If you borrow using your cryptocurrency as collateral, you don’t realize tax on the cryptocurrency used as collateral since this is not a sale of cryptocurrency.

As long as your cryptocurrency is not sold or exchanged for another cryptocurrency, you will not realize a taxable event.

A risk associated with borrowing cryptocurrency is that if the value the cryptocurrency used as collateral goes down too much, or if the value of assets borrowed increases too much then you’ll trigger a margin call / liquidation. This would be treated as if you sold your cryptocurrency for dollars and will trigger a taxable event.

Cryptocurrency Taxes for Governance and Incentive Tokens

Many DeFi platforms now utilize governance and incentive tokens which are earned as income. When these types of tokens are distributed they will be taxed as ordinary income at the current market value. This value will also establish your cost basis. If you sell this token after holding it you may also realize a capital gain or less depending on the price of the token at the time of sale.

Wrapping Up

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transaction, particularly DeFi.  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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United Kingdom Issues Cryptocurrency Tax Guidance

Here at Camuso CPA, we offer a wide array of tax services for cryptocurrency 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.

The United Kingdom’s tax agency has released an explanation of how it sees cryptocurrency assets and how individuals will be taxed on their holdings. The report focuses on how individuals possessing cryptocurrency might be taxed,but does not outline the tax structure for tokens held by businesses or for business purposes. Guidance on that will be published at a later date. Her Majesty’s Revenue and Customs (HMRC) is the government agency responsible for collecting taxes.

This does not impact US investors, but we watch all crypto tax regulation developments closely to gain insights to perspectives and circumstances that can impact future legislation here in the USA. Much like the US the UK tends to view crypto tax property for tax purposes.

The report notes a token’s treatment for tax purposes is dependent on the token’s use case, rather than its definition. Cryptocurrencies will not be taxed in the same way as gambling. The report goes into detail, explaining how and when their transactions may be classified as securities. To simplify the calculations required, taxpayers are permitted to pool different assets together.

Investors who purchase tokens specifically in the hopes that their value will increase will be required to pay capital gains tax when they sell, while individuals who receive tokens from their employers as a form of payment, from mining, transaction fees or airdrops will have to pay income tax and national insurance contributions.

Tax authorities across the world will continue to issue further guidance and focus more heavily on cryptocurrency tax compliance. We will continue to track these developments closely. Time will tell, but it will be interesting to see how things develop here in the states related to the designation of cryptocurrency as intangible property from the Private Letter Ruling in 2014.

Contact Our Team Today

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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End to Anonymous Cryptocurrency Trading by Shapeshift, A CPA’s Perspective

Cryptocurrency exchange Shapeshift is launching a new mandatory membership program that will now require users to provide personal information. Cryptocurrency exchanges are under more regulatory pressure than ever, with governments requiring that they conduct KYC and AML procedures to prevent fraud. As a centralized exchange, Shapeshift lacks the ability to operate without a license or some form of cooperation from local governments.

KYC and AML processes are the first step for both exchanges and users to begin moving towards compliance and disclosure to regulatory authorities. As exchanges such as Shapeshift move towards user registration compliance, we noted in a separate recent article that various countries across the globe have developed in international crypto tax force to target non-compliant cryptocurrency investors.

As the topic of institutional investors and Bitcoin ETFs continue to gain more relevance, we will undoubtedly start to see more centralized exchanges conform to the same demands that traditional financial institutions comply with in order to gain access to larger customers. Our prediction is that we will see further sweeping inquiries into user data from exchanges such as we saw last year with the John Doe request from Coinbase, additionally investors should expect to receive more 1099-K forms from exchanges in future years.

The change from being an ‘exchange without accounts’ to requiring personal information was made for 3 primary reasons:

1) The requests of many of our users to have account-related features: A record of transaction history, saved/whitelisted addresses, and email notifications, etc.

2) Increasing interest in the broad phenomenon of tokenization — the ability to “financialize” and bring liquidity to various aspects of business/customer relationships. Specifically, the ability to build tokenized loyalty programs, in which the engagement between a business and its customers can itself become an asset.

3) The practice of requiring customers to hand over personal private information is one we’ve struggled with since inception. To the extent that digital asset technology remains a legal grey area, we need to be prudent and thoughtful in our approach as we navigate the regulatory environment.

Contact Us Today

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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SEC STATES BITCOIN AND ETHEREUM ARE NOT SECURITIES, FAVORABLE TAX IMPLICATIONS

William Hinman, the Securities and Exchange Commission’ director of the division of corporate finance said Thursday that ether — the currency that powers the Ethereum network — shouldn’t be regulated in the same way as stocks and bonds.

“Based on my understanding of the present state of ether, the Ethereum network, and its decentralized structure, current offers and sales of ether are not securities transactions,” Hinman said at Yahoo’s All Market Summit: Crypto in San Francisco. “And, as with bitcoin, applying the disclosure regime of the federal securities laws to current transactions in ether would seem to add little value.”

His statements follow similar ones made in April by SEC chair Jay Clayton about bitcoin. Taken together, the two sets of remarks provide the clearest understanding of how the regulatory agency views the cryptocurrency market.

When a cryptocurrency becomes sufficiently decentralized, as the widely popular bitcoin and ether have, the agency no longer views it as a security. In contrast, smaller initial coin offerings, or ICOs, are almost always securities in the SEC’s eyes. That distinction matters, because securities are subject to the same regulations as normal stocks.

This indication by the SEC has implications investors may not first consider from a tax perspective. 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, since Bitcoin and Ethereum have not been labeled a stock or security, the IRS can only tax traders for non-economic substance transactions under property rules. These transactions are similar to wash sales, considering the volatility of crypto markets and the potential argument that investors made late trades in response to market-moving news as opposed to tax motivations, traders have a legitimate position on the matter.

https://www.camusocpa.com/contact/#/

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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PORTUGAL PROVIDES HIGHLY ANTICIPATED TAX CLARITY FOR THE EU

The Portuguese Tax Authority (PTA) is one of few countries that has taken specific steps to create a framework defined framework for cryptocurrency taxation, helping to provide a great amount of clarity on the murky subject.

This came a result of an unidentified company seeking guidance on whether or not its token was covered by value added tax (VAT) exemptions similar to what are offered for legal tender. The announcement, like most tax provisions, contain general provisions and exemptions as noted below:

Transactions that contain a token could, in principle, be considered as a critical transfer of goods and result in a VAT liability. However, the PTA acknowledged that the digital coins could be eligible for the legal tender VAT exemption.

The PTA explained that the exemption would only be applicable in instances where the transfer of the tokens occurs in an alternate form of payment. This means that, the tokens most likely would be exempt if they are exchanged using a defined legal currency.

Since the VAT system is used among all European Union (EU) member states, the decision by the PTA most likely will be mirrored throughout EU states. This is a large step forward for the global crypto-community who is looking to move the industry forward by aligning with new regulations for mainstream adoption.

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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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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Important Wash Sales Update for Cryptocurrency Investors and Traders

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.

This indication by the SEC has implications investors may not first consider from a tax perspective. 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, since Bitcoin and Ethereum have not been labeled a stock or security, the IRS can only tax traders for non-economic substance transactions under property rules. These transactions are similar to wash sales, considering the volatility of crypto markets and the potential argument that investors made late trades in response to market-moving news as opposed to tax motivations, traders have a legitimate position on the matter.

Contact Us Today

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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Experienced CryptoCPA: Definitive Guide to 2018 Masternode Taxation & Tax Planning

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.

Just about every virtual currency transaction; from mining and spending to trading and exchanging, will be a taxable event for U.S. tax purposes. According to Uncle Sam, Bitcoin and other cryptos are classified as property. In our latest episode, we will go over how cryptocurrency masternode activity is taxed and how business owners and investors should prepare for this tax season.

Contact Us Today

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.

https://www.camusocpa.com/contact/

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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CRYPTOCURRENCY TAX RETURNS: SHOULD YOU PREPARE YOUR OWN?

Many people have reaped some serious rewards from their cryptocurrency investments. It’s a lucrative new monetary medium that many people are getting behind. But because it is new, it becomes harder to navigate when tax season comes around. Taxes can be hard enough to understand when you are dealing with normal income, and many people end up leaving money on the table. Mistakes become much more likely when dealing with cryptocurrencies, so we make the argument that filing cryptocurrency tax returns should be left up to the professionals. Here’s why.

IT’S GOING MAINSTREAM

Cryptocurrencies, especially the big ones like Bitcoin, are becoming more mainstream than ever. That means that the IRS is cracking down on them come tax season. While many have been able to under report their virtual currency assets in the past, this practice is fast becoming inviable. In fact, the IRS has recently filed a suit in court against Coinbase, which is one of the largest cyrpto exchanges in the United States, in order to find information on potential tax evaders. This is not a good time to be making mistakes on cryptocurrency tax returns.

PROFESSIONALS ARE KNOWLEDGEABLE

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.

AVOID AUDITS/COURT

Even something as simple as human error on a tax return can result in an audit by the IRS. For investors out there, this poses a significant problem when trying to report income. By hiring out to a professional CPA firm, that firm can assume responsibility for the veracity of your tax returns. Considering how busy many investors are, the savings on time alone can be enough to justify cryptocurrency CPA services. An audit alone is stressful enough, but having to go to federal court to prove you earned your wealth legally is a real drain on both time and resources.

Hopefully we’ve explained the necessity for CPA tax help when it comes to cryptocurrency tax returns succinctly enough. Here at Camuso CPA, we are proud to help people in the Charlotte area save money on their tax returns. If you would like to know more about how our cryptocurrency tax services can benefit you, please do not hesitate to reach out to us 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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