Understanding the Taxation of Crypto
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- ALL Forms Related to Crypto
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Determine If You Qualify Taxation of Crypto
Every tax form you need (and probably some you don't)
Our software automatically generates every tax form you need to complete your filings.
- Form 8949, Schedule D
- FBAR
- International forms
- E-filing
Sync your data seamlessly.
Legacy Tax & Resolution syncs with all your wallets and accounts, mainly eliminating manual data entry and letting you see and analyze all your data in one place.
- API and wallet integrations
- DeFi, NFT support
- Margin and futures trading support
- Easily find and fix errors or missing data
Preview your tax bill in real time.
Track and preview your tax liability, so you’re never caught unprepared. Our tax reports include:
- FIFO, LIFO, Minimization, and average cost tax liability calculations
- Tax loss harvesting dashboard
- Mining and staking income reports
- Ethereum gas fee reports
- Custom enterprise reports
Relax. Let us do the work.
For investors with more complex accounting needs, we offer advanced reconciliation services from crypto-savvy tax professionals. We’re well-equipped to handle data that includes:
- Missing cost basis or messy data situations
- High transaction volume
- Cross-chain transactions
- Enterprise solutions
As cryptocurrencies gain increasing acceptance, taxpayers need to become more familiar with the complex intricacies of these unique assets
Cryptocurrency may be akin to digital money — but it’s a long way from cash for tax purposes. For example, the U.S. Internal Revenue Service (IRS) classifies digital assets as property.
Traders and investors everywhere are adding cryptocurrency to their portfolios. And at tax time, they may be going to their tax professionals for advice on handling these assets. Many other tax preparers increasingly need to ascend a steep learning curve before they can advise their clients on cryptocurrency taxation.
Cryptocurrency tax issues don’t have to be time-consuming or scary — and we provide exceptional value to clients by being grounded in the below core principles and following established best practices.
Treat cryptocurrency like property
As mentioned, the IRS classifies cryptocurrency and other digital assets as property. Standard property tax rules apply, with realized capital losses or gains typically determining crypto tax liability.
Treating cryptocurrency like property is akin to real estate or stock for tax purposes. Just like you would report capital gains or losses from any property transaction, the same is required for most cryptocurrency transactions.
Engage with crypto communities
Tax professionals can significantly enhance their understanding of cryptocurrency and crypto taxes by engaging with crypto users directly. Participating actively in one or more crypto communities is a solid way to stay informed about the latest trends, tools, and challenges that matter to crypto tax clients.
To become more active in a crypto community, taxpayers could use channels like Telegram, Discord, and Reddit to participate in focused crypto forums or other social media discussions about crypto. Taxpayers could also attend meet-ups of crypto groups or cryptocurrency conferences or join or organize a crypto tax webinar.
Understand how DeFi and ICOs are taxed
Questions like, How are new crypto tokens distributed for the first time? And What’s the role of decentralized finance (DeFi) in all this? It is crucial to know. Initial coin offerings (ICOs) and DeFi are both critical for taxpayers to understand.
ICOs work a lot like initial public offerings (IPOs) of stock, but they may differ in their tax treatment. Receiving a crypto token via an ICO may be treated as income when the token is received, or the token may be classed as a capital asset subject to capital gains tax only when sold. The tax treatment for tokens produced by ICOs varies across jurisdictions.
DeFi, conversely, uses blockchain technology to eliminate the need for financial intermediaries like banks. DeFi platforms support various transactions, including buying, selling, trading, lending, and earning interest on cryptocurrency. The complexity and diversification of the activities occurring on DeFi platforms can challenge taxpayers’ understanding of how DeFi works and interpret the tax implications that arise from clients’ DeFi transactions.
Use crypto tax software
Taxpayers wishing to streamline cryptocurrency taxes’ accounting and reporting process can opt to use crypto tax software. Using a comprehensive software tool is how many taxpayers — primarily those new to crypto — ensure the quality and accuracy of the transactions.
Most of the crypto tax software on the market can perform a variety of tasks more quickly and efficiently, including allowing the user to connect with multiple blockchains and exchanges, automatically import cryptocurrency transaction data, record and track many different types of crypto transactions,, and process more complex crypto transactions. User can also calculate gains and losses using appropriate cost-basis methods and efficiently generate customized tax reports for their clients.
These crypto tax software solutions can save valuable time and resources for taxpayers, as long as taxpayers are careful to choose crypto tax software that is reliable, secure, and in sync with current laws and regulations.
Monitor the regulatory landscape
The regulatory landscape for digital assets is evolving at breakneck speed. Federal agencies in the United States are suing major industry participants and fighting over whether and which cryptocurrencies are securities. Lawmakers and regulators in the United Kingdom are making strong moves to classify cryptocurrency as a regulated asset. And jurisdictions like Hong Kong are increasingly opening up to attract more crypto and web3 businesses.
Taxpayers must become knowledgeable about the crypto regulatory landscape and pay close attention to what’s changing. What’s true today about crypto regulation can easily be false tomorrow — and clients are relying on their tax professionals to know what’s happening.
Fortunately, there are a few different options for tax professionals to stay well informed in this area, including subscribing to reliable news sources that focus on crypto issues, reviewing official regulatory announcements, attending cryptocurrency taxation webinars, and joining professional forums for crypto tax professionals.
How crypto transactions are taxed, how information is reported, and what penalties apply for non-compliance can evolve as the crypto industry matures. By monitoring crypto news and trends, taxpayers can ensure that they stay on top of all changes that matter for tax.
Know what qualifies as a taxable event
Not all crypto transactions have tax implications. Using fiat money to buy and hold cryptocurrency is generally not taxable until the crypto is traded, spent, or sold.
Taxpayer can reduce their mental load by clearly understanding which types of crypto activities and transactions can have tax consequences, such as:
- Selling cryptocurrency — A client who sells cryptocurrency or digital assets for profit is required to report the capital gain. A client who loses money from a crypto sale can report a capital loss.
- Trading cryptocurrency — Using crypto to purchase more cryptocurrency or trade for other tokens is taxable. IRS taxation rules on short-term and long-term capital gains apply to crypto.
- Spending cryptocurrency — Clients who use cryptocurrency to make purchases must report any capital gains or losses. The net gain or loss is calculated at the time of the purchase.
- Earning cryptocurrency — A taxpayer who receives crypto to provide goods or services must report cryptocurrency as income. When paid, the cryptocurrency’s market value determines the client’s tax burden.
- Staking or mining digital assets — Receiving cryptocurrency from mining, staking, or another on-chain activity can create tax consequences. The cryptocurrency’s trading price when it is generated generally determines the cost basis for tax purposes.
Here’s how our in-depth process works.
Transaction NFTs
NFTs have been making headlines lately as the new hot asset class. But what many people don’t realize is that NFTs are subject to taxes just like any other asset. This means that if you sell an NFT for more than you paid for it, you will owe capital gains tax on the sale. The amount of tax you owe will depend on your tax bracket. If you are thinking about buying or selling NFTs, be sure to contact our cryptocurrency tax specialists to help you factor in the taxes!
Tax Reporting
Due to the ongoing loose regulation of the industry and the continued debate over the legality of digital currency ownership, many people remain confused about cryptocurrency tax implications. However, failure to report capital gains, even unknowingly, is considered tax fraud and could end up costing you significantly. Our team can help you understand your investment classification, maintain thorough documentation, fill out the proper forms, and ultimately ensure you achieve and maintain tax compliance with the IRS
Gain/Loss Calculations
Every cryptocurrency transaction that results in capital gains or losses is considered a taxable event and thus, thorough tracking and documentation are important for accurate gain/loss calculation. For some investors, this can involve hundreds or even thousands of transactions over the course of a year, quickly becoming a complicated and confusing accounting situation.
Whatever your level of cryptocurrency involvement, we can assist in unraveling a complex array of crypto transactions, determine your net gains/losses, and keep you prepared when tax time rolls around.
Transaction Tracing
Cryptocurrency investors often face the challenge of trying to track down their assets after losing them. This can be especially difficult if the coins were transferred to another wallet or exchange. However, transaction tracing may be able to help. By analyzing the blockchain, it may be possible to determine the original owner of the coins and track where they were transferred to.
This process can be time-consuming and requires a great deal of expertise, but it may be the only way to recover your lost investment. If you think you may have lost some cryptocurrency, contact our qualified transaction tracing specialists today. We may be able to help you recover your coins and get your investment back on track.
Capital Gain Or Loss Summary Report (Form 8949)
A properly prepared capital gain or loss summary report provides a detailed analysis of each transaction, including the date of purchase and sale, as well as the amount paid and received. This information can then be used to calculate total profits and losses for the period, giving investors a clear picture of how their investments have performed.
Whether you are looking for an overview of your trading activity or a more in-depth analysis of market trends, our capital gain or loss summary report services can provide you with the tools you need to best prepare from a tax perspective in today’s financial landscape.
ICO Support
Are you looking to raise capital for your cryptocurrency start-up? While billions of dollars continue to be poured into this space, investors are becoming increasingly cautious/selective and there are many challenges to face when raising money through an ICO. Unlike an IPO (Initial Public Offering), an ICO (Initial Coin Offering) generally lacks regulation and this may leave you with questions about how to proceed.
Let our financial experts guide you through the process – from setting a realistic budget to financial security structuring and optimizing your tax categorization, we can improve your ICO potential.
DEFI
As the Defi space continues to grow and evolve, investors need to be more careful than ever when it comes to tax implications. Defi transactions can be complex and often involve multiple different asset types. This can make calculating the correct tax liability a challenge.
Fortunately, our team at Legacy Tax & Resolution Services specializes in Defi tax calculations. We have the experience and expertise to handle even the most complex Defi transactions. We can help you understand the implications of your Defi investment, and ensure that you are compliant with all applicable laws.
Tax Calculation for Crypto Derivatives
Tax calculation for crypto derivatives can be a complex process, especially for investors who are new to this rapidly-expanding field. In order to properly account for these transactions in your reports and filings, it is crucial to understand the underlying tax principles that apply to these kinds of trades. Tax authorities typically look at crypto derivative trades as financial contracts, meaning that any gains or losses will be treated as capital gains or losses, in accordance with commonly-accepted tax guidelines. Additionally, tax rates will depend on whether you are trading with short-term or long-term perspectives.
By consulting with our qualified tax professionals, you can make sure that your crypto derivative transactions are reported in a way that is both accurate and compliant. With the right approach, investing in crypto derivatives can help you achieve your financial goals while also minimizing your tax obligations. We can help you invest confidently in this exciting area of the market!
Cryptocurrency for Business
Cryptocurrency has become an increasingly important part of business operations in recent years. As more and more companies begin to accept digital currencies as payment, it is crucial that they also have reliable systems in place for tracking and managing their cryptocurrency transactions.
At Legacy Tax & Resolution Services, we are experts in helping businesses develop and implement streamlined cryptocurrency bookkeeping systems that help to reduce costs and stay on top of changing regulations. Whether you are just starting out with cryptocurrencies or seeking to upgrade your current processes, our expert team will work closely with you every step of the way, ensuring that your business has the tools and knowledge needed to smoothly manage its cryptocurrency bookkeeping needs.
So if you’re looking to get ahead in the rapidly evolving world of digital currencies, look no further than Legacy Tax & Resolution Services.
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