As cryptocurrency continues to gain mainstream popularity as lucrative financial investments, governments have stepped in and introduced several forms of taxes as a means of regulation. With crypto evolving on a daily basis and every sale, purchase, and transfer being a taxable event, it can be difficult to keep track of all the taxes involved. This is why you need the services of a professional cryptocurrency accountant. In this blog, the team at Onchain Accounting will be breaking down the taxes involved with cryptocurrency and why hiring an experienced crypto CPA makes absolute sense.
What are the taxes that apply to crypto transactions in the US?
In the United States, the IRS defines a digital asset as something that is “stored electronically and can be bought, sold, owned, transferred, or traded.” As such, they consider cryptocurrencies such as Bitcoin, stablecoins, and non-fungible tokens (NFTs) as digital assets. For the purposes of taxation, the IRS considers digital assets as property, and the tax applied will primarily depend on how you obtained the digital asset and how long you held on to the asset before the sale.
As such, your crypto assets can be subject to capital gains tax in the following situations:
- The sale of crypto assets for cash
- The conversion of one crypto asset to another
- Spending crypto assets on goods and services
However, the rate of the capital gains tax will depend on the time you choose to dispose of your assets. For instance, if you sell, convert, or spend your cryptocurrency within less than a year of its purchase, you will be subject to a short-term capital gains tax, where you can be taxed between 10 and 37% depending on your income. If you hold on to your digital assets for more than a year, at the point of sale, you will be subject to the long-term capital gains tax, which can be either 0%, 10%, or 15%.
On the other hand, your crypto can be subject to income tax in the following situations:
- When you paid/compensated in crypto
- When you receive crypto in exchange for goods/services
- Engaging in crypto mining
- Earning staking rewards
- Obtaining crypto from a hard fork
- Receiving crypto via airdrops
When is crypto exempt from tax?
Even though the sale, conversion, and transfer of cryptocurrencies can be taxable events, there are several instances where crypto assets will not be subject to tax. They include:
- Buying and holding crypto without ‘realizing’ gains
- Donating crypto to tax-exempt charities or non-profits
- Receiving crypto as a gift
- Giving crypto as a gift
- Transferring assets between your crypto wallets
What services does a crypto CPA provide?
Between the constant price swings, multiple wallets, and ever-changing rules and regulations, keeping track of all your tax obligations while managing your assets will require more than a spreadsheet—you need the help of an experienced crypto CPA. We at Onchain Accounting have been sharing our crypto tax experience for over 8+ years, and here are some of the services we provide:
- Crypto bookkeeping and expense management
- Portfolio tracking
- Crypto reconciliation
- Tax planning and optimization
- NFT and DeFi services
- CFO services
- Ensure compliance with IRS tax regulations
Conclusion
Managing your crypto transactions and taxes alone can be quite the challenge—especially when there are multiple wallets, platforms, and assets involved. Therefore, to grow your investments without worrying about recording mistakes and penalties, save yourself the trouble and call on a professional cryptocurrency accountant.
At Onchain Accounting, we are specialists in providing tailor-made solutions for your cryptocurrency and blockchain financial management requirements. From comprehensive tax planning and bookkeeping to seamless reconciliation, our team has been ensuring accuracy and compliance in a rapidly evolving landscape for over 8+ years. Experience the best of the crypto world while complying with all regulatory requirements with Onchain Accounting.