Cryptocurrency Tax Help

Since the invention of cryptocurrency, companies and individuals have been quick to take advantage of this new phenomenon to get an edge on their finances and business goals. However, there is a great deal of misinformation surrounding how cryptocurrency works. When this confusion is combined with the already complex nature of tax laws, it can be easy for well-meaning individuals to find themselves on the wrong side of the law.

Do you have questions regarding crypto taxes?

Give us a call at (717) 251-5029 or fill out a brief contact form.

What is Cryptocurrency?

Created in 2009, cryptocurrency is a virtual currency that is secured by cryptography to ensure that counterfeiting or double spending is nearly impossible.

Bitcoin

Bitcoin is the first, largest, most popular type of cryptocurrency that is currently on the market. It is a peer to peer electronic cash system that only exists online and is used to buy products or services.

Ethereum

Ethereum is an open software platform which helps individuals create and run decentralized smart contracts on its system. Smart contracts are applications that enable the exchange of any item of value. The currency used in the Ethereum network is called Ether and can also be used to pay for code execution on its network.

How is Cryptocurrency Taxed?

It is important to remember that most countries treat cryptocurrencies as property for tax purposes and not as currency. Consequently, a person can incur capital gains and capital losses when a taxable event occurs.

Taxable Events

Cryptocurrency is taxable when it is:

  • Sold
  • Traded
  • Used to buy goods and services

It should also be noted that mining cryptocurrency is classified as receiving a form of income and therefore taxable.

Non-Taxable Events

Not every action taken with cryptocurrency is taxable. Such events include:

  • Buying and holding cryptocurrency
  • Transferring cryptocurrencies

Types of Capital Gains

The IRS has designated cryptocurrency as an asset. Consequently, it can be taxed by how long you hold it. When paying your crypto taxes, it is crucial to understand the difference between short-term and long-term gains.

Short-term Gains

  • Occur when you hold your investment for less than 12 months
  • You’re taxed in your marginal tax bracket

Long-term Gains

  • Occur when you hold your investment for longer than 12 months
  • You’re taxed on the long-term capital gains rate, which varies based on your yearly income

Frost law’s cryptocurrency tax attorneys and CPAs can help you properly file your short-term and long-term capital gains in your tax returns.

IRS Form 8948 and 1040 Schedule D

Since cryptocurrency is treated as property for tax purposes, individuals must complete IRS Form 8949 in their tax returns to report cryptocurrency transactions. Once this step is complete, taxpayers must use the resulting data to fill out section 1040 Schedule D of their tax return.

To learn more about the various steps required to report your crypto taxes, contact Frost Law’s cryptocurrency tax attorneys. Our well-versed legal team can guide you through the process to fill out the necessary paperwork.

Cryptocurrency Tax Attorneys Near You

Contact Frost Law’s cryptocurrency tax attorneys at (717) 251-5029 for a free consultation regarding your crypto tax situation. Our cryptocurrency tax attorneys and CPAs will review your case and help you file your taxes in accordance with the law. If you believe you have made a mistake while filing your tax returns, our legal team can explain your rights and legal options.