Harness Wealth CPAs represent clients that hold crypto assets that invest long-term, actively trade, farm, stake, as well as mine. We’re here to help guide you through your crypto taxes so you can focus on building, investing and trading.
Crypto Asset Taxes in the United States
One of the most common misconceptions about crypto assets is that, because they are not issued by a central government or regulated as securities, there is no need to pay taxes on profits from investing, trading, farming, staking or mining them.
In the United States all profits made from the purchases and sales of crypto assets such as Bitcoin, Ethereum and NFTs are subject to capital gains taxes (including airdrops). This is because they are treated as property (much like stocks, real estate, or gold).
The laws around how crypto taxes work are fairly new and will continue to evolve alongside this groundbreaking technology. This makes it all the more important to consult an expert if you’ve experienced profits (or losses) via any crypto asset related activities this year, and to plan ahead for future years as well if crypto assets makes up a sizable chunk of your assets.
IRS Crypto Asset Laws: Keeping Records, Taxable Events, and Capital Gains and Losses
While every individual’s experience is different and subject to the tax laws of their specific jurisdiction, the high-level crypto asset tax rules you should be aware of are that:
- Trading from a crypto asset to fiat currency like USD is a taxable event
- Trading from one crypto asset to another crypto asset (i.e. from Bitcoin to Ethereum) is also a taxable event
- Spending crypto assets on goods or services is a taxable event
- A transfer of the same crypto asset from a wallet address to another wallet address is not considered a taxable event, but you should still maintain a record of the transaction
- Selling coins or tokens that were received from airdrops, farming, staking rewards or mining is considered a taxable event
- Selling coins or tokens that were airdropped via a fork (i.e. Bitcoin Cash received from the Bitcoin fork) is considered a taxable event
- Trying to hide crypto assets or profits is considered tax evasion
- Capital gains losses can sometimes be claimed on crypto assets sold at a loss
- Businesses based on staking, mining or using crypto have unique guidelines
- Holding crypto assets without selling is not considered a taxable event
These bullet points are a brief summary, but there are other detailed rules and regulations around crypto taxes that any serious investor, trader, farmer, staker or miner should be aware of.
If you took part in anything other than simply buying crypto to hold in a wallet, you should highly consider discussing your potential tax liabilities with a professional. While the laws will continue to develop, one thing is clear: the IRS expects you to make a good faith effort in reporting crypto asset activities.
Crypto Assets Alongside Your Other Assets: Help from CPAs and Financial Advisors
Harness Wealth works with tech founders, employees, and VCs — these folks were typically very early adopters of crypto given their industry, and we’ve seen crypto make up increasingly sizable portions of investment portfolios. As this happens, there are not only tax questions but overall investment management questions that arise, particularly around risk.
The technology is exciting, but many people are failing to grasp the reporting requirements as vendors play catch-up in providing users with the documentation they need (and is legally required!).
A clear understanding of your personal tax responsibilities is vital to participating in the growing crypto economy. Sign up with Harness Wealth today to find both tax and financial advisors that will ensure that your crypto and overall assets are protected.