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