Cryptocurrency FAQs

2017 was the first year where we had a lot of crypto questions! Then valuations came down & we did not hear about coins much until 2020 when they exploded again. Since we have hundreds of clients with crypto, many of them asking some of the same questions, I will go through some common ones below: 

Question: I forgot to report crypto on my prior year returns – what should I do? 

Answer: The IRS is cracking down on people that have not reported crypto – this is not professional advice until you contact us, however, you must amend your returns to include this right away. 

Question: If I traded one crypto from another but did not convert back to fiat, do I have to report that? 

Answer: Yes, you must report that as a transaction on form 8949

Question: How do I generate this form? 

Answer: There are countless platforms that will generate this for you by linking to your exchanges. Examples are cointracker.io and cointracking.info, however, there are dozens that function similarly 

Question: What if my exchange was shut down or the data is no longer available? 

Answer: You are entirely allowed to use estimates – if you are not sure how the rules around estimates work, please book a consultation with us & we will guide you. 

Question: I have more than one type of income from my crypto – should I report interest separately from trading, for example? 

Answer: Yes, each activity may have its own reporting requirements, so reach out to us and we will parse through your activity to determine which forms & schedules you are required to file

Question: I was the victim of crypto fraud – is this a deduction? 

Answer: Yes, financial fraud is still deductible. We can help you with this deduction

Question: I have millions in potential crypto gains – are there any strategies for me to write off this income? Can I also move to a state with less (or no) income tax?

Answer: Great question – there are quite a few strategies to be implemented here depending on your individual circumstances – happy to go through those with you. 

Question: I have already generated my 8949 but my cost basis does not look right – what do I do? 

Answer: Contract us & we will show you exactly how to handle this [very common] situation 

Question: I barely had any trading activity – should I report? The activity was less than the 1099 requirement

Answer: The IRS requires that you report this activity, even if only $100 worth of transactions. This is because although there is a threshold for Coinbase (for example) to generate a 1099, you are still required to report it. 

Question: If I trade crypto frequently for example buy and sell within 30 days, will the wash sale rules apply to my loss?

Answer: The great news is that wash sales rules don’t apply to crypto. If you sell crypto for a loss, you can use the loss to offset the capital gains.  

Question: How are staking rewards from DeFi accounted for? 

This depends on the underlying activity, however, generally speaking, this is interest income

Question: Can I take a tax deduction if I am victim of crypto fraud/crypto scam? 

Yes, there are several ways to do this, each with their own audit risk, pros & cons, etc. Contact us to discuss as this is a complex decision 

Question: How are NFTs taxed? 

This depends on if you are creating the NFT & then selling it – if that is the case, then this is ordinary income [business income] then if it is sold for crypto, trading the crypto back to fiat would require an 8949 filing. If you are confused about this, reach out to us below. If you are trading NFTs, then this is also reported on IRS form 8949. 

Question: My exchange is asking me to send money for tax before they will let me withdraw. Is this normal? 

Answer: this is not normal – you are likely victim of crypto fraud. Reach out to us if you need details on what others have done in this case as we receive emails about this literally daily. 

Question: What crypto exchanges are currently frozen and what are the tax implications?

Answer: The major crypto exchanges such as FTX, Blockfi, Voyager Ditigal, Three Arrows Capital (3AC), and Celsius Network have gone bankgrupt in 2022. If you hold any virtual currencies in any of these exchanges, you may get a tax break. Contact us to find out about the best way to claim loss deductions on your tax returns.