How Crypto Tax Accountants Simplify Your Tax Filing

Crypto assets like Bitcoin and Ethereum are treated as property when reporting taxes. This makes cryptocurrency taxable in two ways: capital gains tax and income tax. Although this may look simple at first, reporting all your crypto activities accurately to avoid tax problems is quite challenging. It is necessary to get help from crypto tax accountants who are experienced in crypto tax filing. With their proficiency in handling different crypto taxing cases, crypto tax accountants can simplify your tax filing process while ensuring compliance with tax laws.

1. Taxable Events in Cryptocurrency

Any crypto transaction that results in a tax is called a taxable event. Since crypto is a digital asset that is treated as property for taxing purposes, your crypto activity is deemed to be taxable in a similar manner to stocks, bonds, and other capital assets. Avoid confusing cryptocurrency taxation with traditional currency taxation due to the similarity in their terminology. Crypto transactions are taxable as capital gains and as income.

Taxable Events as capital gains:

• Selling crypto at a profit is taxable. If you sell crypto at a loss, it is deducted as a loss from taxes.
• If you convert crypto to a different digital asset, for instance, ether to bitcoin, it constitutes a taxable event as you initially sell your crypto to buy a different type of crypto.
• When you spend crypto on goods and services, it is similar to selling an asset in crypto taxation laws. Therefore, you have to pay capital gains taxes.

The following crypto activities are taxable as income:

• Getting paid in crypto by an employer
• Receiving payment for a good or service
• Mining crypto
• Stake rewards
• Any rewards earned by holding cryptocurrencies, referring a friend, or other incentives
• Receiving airdrops

2. Non-Taxable Events in Cryptocurrency

While many cryptocurrency transactions are taxable, there are specific situations where cryptocurrency activities are considered non-taxable. Crypto tax accountants are well aware of these non-taxable events as it helps crypto investors manage their portfolios strategically while remaining compliant with tax regulations.

If you purchase cryptocurrency and hold it without selling or trading it, this is classified as a non-taxable event. Merely holding a digital asset does not trigger any tax obligation because there has been no realized gain or loss. Taxation occurs only when the asset is sold or exchanged for another cryptocurrency, fiat currency, or goods and services. This means investors can accumulate crypto without immediate tax concerns.

Similar to buying crypto and not selling it, if you receive crypto as a gift and don’t sell it, you won’t be subject to any crypto taxes. When you gift crypto instead of selling it, if the value is less than the annual gift tax exclusion limit ($17,000 per recipient in 2024), there is no taxation. For gifts to spouses, higher exemptions apply, especially in cases involving marital trusts or joint accounts.

Another occasion where crypto does not undergo taxation is transferring crypto between your own wallets or accounts. Since you retain ownership of the asset, there is no sale, trade, or disposition involved. Crypto tax accountants emphasize the importance of maintaining clear records of such transfers, including wallet addresses and transaction IDs, to demonstrate continuity of ownership in case of an audit.

Donating crypto to a qualified non-profit or charitable organization is also a non-taxable event. Such donations may even qualify for a charitable deduction, depending on the fair market value of the crypto at the time of the donation. Crypto tax accountants can maximize tax benefits by guiding you to support causes from organizations that are tax-exempt.

3. Advice from Crypto Tax Accountants

Crypto tax accountants apply their specialized knowledge to implement strategies that minimize tax liability. They file accurate tax returns and meet deadlines during tax season so that you can avoid penalties for non-compliance or underreporting. Keeping track of all your crypto transactions is essential to identify taxable events. With experienced crypto tax accountants, you don’t have to be overwhelmed by numbers as they use advanced blockchain tools to simplify the tax filing process accurately.

Consult a professional crypto tax accountant from OnChain Accounting for advice on optimizing your crypto tax filings. Schedule a free initial consultation and make informed financial decisions by identifying tax-saving opportunities.