Crypto Tax Surprises
March 06, 2023
If you have been paying attention over the last few years, you know that Cryptocurrency, stablecoins, and non-fungible tokens (NFTs) have piqued interest from several investment companies, day traders, and of course, the IRS. The buzz surrounding these new currencies with their celebrity spokespeople has been unavoidable.
Should you invest?
Before you jump into cryptocurrency, it is vital to understand that general tax principles apply to digital asset transactions. Digital currencies tend to have similar fluctuations to monetary currencies. The economic uncertainty with the stock market hit some crypto investors hard last year. That information needs to be reported to the IRS whether you took a loss or had a gain last year. Yes, that means the IRS wants their share.
Do I need to report cryptocurrency on my taxes?
How do you prepare for taxes if you trade in cryptocurrency? Inform your CPA that you have invested in cryptocurrency or other digital assets. Send statements from your trading or exchange company or digital receipts to your CPA as part of your tax package. Remember that you can only deduct $3k in losses for last year.
Digital asset gains or losses must be reported yearly on your federal taxes. The IRS can review your returns for the last ten years, looking for impropriety. If you do not disclose to the IRS that you are trading digital currencies and are audited, or the IRS finds out you have not declared this information on your taxes, you can be charged with fraud. In addition to the hefty penalties levied by the IRS, you can be imprisoned for tax fraud.
Cryptocurrency as Business Investment
Some business owners with extra cash in their business accounts choose to purchase crypto for their business. But, if your business is an S or C corp., there are additional tax consequences to consider. A knowledgeable CPA can recommend other options for S or C corp. business owners who want to invest and benefit from additional tax deductions.