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.