Why you can’t ignore accounting for your cryptocurrency.
I was having drinks with a colleague at an event the other day and he happened to mention he had bought and sold some Bitcoin over the last year. He had accepted payment for some services in crypto as well. When he asked his accountant if they should do anything with it for his tax return, the accountant said, “we’ll just ignore it for now.”
Friends, if you hear this from your accountant, you should run.
The IRS isn’t going to ignore it, nor should you. And because guidance at this point in the game is not always clear or 100% fleshed out, it doesn’t mean you get a “buy” when Uncle Sam comes around. Rarely is “I didn’t know about it” an acceptable excuse when it comes to taxes.
The tax treatments differ for crypto transactions depending on timing, source and other factors and it is extremely important that you keep detailed and accurate records so you don’t find yourself with a surprise tax liability when you file. Because of the complexity, it is imperative that you find a tax accountant to help you.
Here are a few guidelines to understand when it comes to taxes.
- The biggest complaint most CPAs and accountants have is inaccurate record keeping. Make sure you have accounted for all of your crypto assets, including purchases, mining receipts, airdrops, sales, exchanges and dispositions along with the fair market value of the crypto at the time of the transaction.
- Crypto brokers are required to send records to the government based on various thresholds so if you leave out assets from your records the IRS can find out. Depending on the circumstances, there could be no statute of limitations on how far back they can go when it comes to crypto.
- Tax treatments vary depending on the transaction. Make sure you have properly recorded all transactions– for example a transfer from one wallet to another isn’t a taxable event but buying or selling coins is.
- Having good records of purchase dates can help you avoid taxes if certain assets are held longer than 1 year and will be taxed at a lower rate.
So, if you get advice to “ignore” your crypto, it’s time to high-tail it out of your CPA’s office and find one that will keep you out of trouble with the IRS. In addition, you can help yourself by keeping good records so you can plan the best tax strategies for handling crypto with your CPA. There are a number of platforms you can use, or call us and we can help keep your records straight and make recommendations for CPAs that can keep you on the up-and-up with Uncle Sam.