Tax Planning for Crypto Traders

One of the key challenges to trading is tax planning. According to IRS Notice 2014-21, cryptocurrencies are considered property for tax purposes, which means they are treated much the same way as a house, car, or other forms of personal property. As they appreciate or depreciate in value, the gains and losses you realize will reflect on your taxes.

However, there are many key differences to take into account in your tax planning as a cryptocurrency trader. While they may act in some ways like actual property, the IRS has made certain stipulations that refer to these virtual currencies specifically, meaning the same rules that affect other forms of property may not necessarily apply to your situation.

To navigate this minefield of regulations and codes, you will want the assistance of an experienced tax lawyer. Hart David Carson, can help you identify where your tax liabilities are and make effective plans to streamline your burden as much as possible.

Impact of Trading Cryptocurrencies on Taxes

The exact impact your trading activities will have on your tax obligations are often difficult to anticipate without careful record keeping and a thorough, up-to-date knowledge on the latest developments in federal and state tax codes. As a new technology, cryptocurrencies are largely underrepresented in current laws, meaning the regulations that will apply are going to undergo a constant evolutionary process for years to come.

For example, it is no longer advisable to defer capital gains taxes under Section 1031 Like-Kind Property Exchange rules, which now only apply to real estate investments, nothing else. This means each individual transaction needs to be recorded and applicable capital gains taxes calculated.

Also, no traded amounts, no matter how small, are exempt to from tax calculations, even if you used a virtual currency to purchase actual services or products (as you would with fiat money). The gain you realize upon transfer of the currency must be recorded for tax purposes.

Anticipating Tax Burdens

When you trade on virtual currency exchanges, it is best to plan for your tax obligations well in advance—certainly not right before filing. As stated already, careful record keeping is vital to easing the burden of calculating your taxes when it comes time to report gains and losses on your return.

This is only part of the battle, however. It’s important to use an accounting method that minimizes your overall tax burden, but determining which one requires a careful understanding of the nature of altcoin lots, tax laws, and the methods themselves. Determining whether to use a first-in-first-out method or specified lots requires you to know how your trading activities impact your tax obligations.

Effective Tax Planning and Legal Guidance

Whether you have already been trading on cryptocurrency exchanges for some time or if you’re considering your first foray into the virtual trading scene, the skilled tax law services provided by Hart David Carson, will help you minimize your tax exposure and turn a greater profit. 

Our attorneys are able to provide you with the guidance and legal representation you need, so contact us today to schedule a free consultation.