Investors and technology gurus remain excited about the world of cryptocurrency and other emergent technologies. While cryptocurrency provides an innovative, novel technological investment strategy, investors should remember that the IRS requires reporting and taxes. At Edgewater CPA Group, we encourage clients to have proper safeguards to earn a proper return and report the results. To that end, this post covers some of the misconceptions about cryptocurrency investments and how to mitigate their risk.
File Your Taxes
According to the IRS, virtual currencies are taxed as capital gains. However, many people don’t realize this because they think taxation only applies to fiat. Understand that individual tax returns specifically ask about buying, selling, and trading cryptocurrency investments. If you deny leveraging them when you really have done so, the IRS recognizes that as tax fraud. Therefore, it’s important to acknowledge your activity in your tax preparation and filing.
Understand Your Cryptocurrency Investments and Activity
Buying and selling cryptocurrency seems straightforward with regard to taxation. That is to say, if you hold other investments, you understand this activity prompts its reporting to the IRS. However, you may not realize the IRS requires reporting on other types of activity.
For instance, if you pay employees in virtual currencies, the transaction triggers a couple of things. First, the employee must pay income tax. Second, the payment impacts payroll taxes. In addition, you have to report any cryptocurrency used to make payments to creditors or for goods and services. Consider these activities as trades, which spark a taxable event.
Going further, you must report cashing in your cryptocurrency investments for fiat money. Even exchanging virtual currencies constitutes a trade. Basically, each transaction incurs a capital gain or a loss. As a result, you should account for each of those transactions. Capture profits or losses on your annual net capital gains.
Track, Report, and Monitor Your Activity As It Occurs
No matter what method you use for trading or leveraging cryptocurrency, each event comprises a trade. Since you must account for every trade, get into the habit of tracking activity as it occurs. Newer investors and those who use bots to trade may find this more challenging than some. To that end, we encourage you to use professional accounting services to support your efforts.
Make Use of Qualified Cryptocurrency Accounting Experts
At Edgewater CPA, we specialize in cryptocurrency investments and their corresponding tax implications. Don’t be caught off guard by unforeseen tax obligations. Instead, use our business tax strategy, professional accounting services, and tax preparation and filing. Together, we partner with businesses and individuals in Carmel, Fort Wayne, Evansville, as well as cities nationwide, and we can help you. Call (888) 317-4835 or schedule a consultation online to get started.