Quote from: crptowiz on December 28, 2017, 07:33:26 PM

As the tax season starts soon in United States, how is cryptocurrency earnings reported and taxed? Are there any new mechanisms/notifications issued that tax filers need to be aware of? Wonder if service providers like Turbotax or H&R Block are going to factor in the fact that many individuals would have already made a windfall from the winter Bitcoin rally.

Of course, I'm biased in my response since I work for a CPA firm and provide tax advice, but if taxes are your #1 expense and if you just had a windfall from the winter Bitcoin rally, doesn't it make sense to invest in someone who can really help you minimize your tax situation? TurboTax and H&R Block are not necessarily known for their incredible tax planning capabilities.

IRS Notice 2014-21 was the first big interpretation the IRS offered on virtual currency transactions.
https://www.irs.gov/pub/irs-drop/n-14-21.pdf

Cryptocurrency is taxed depending on how it used. For most, that would be as investment property subject to capital gains treatment. Bitcoin futures received special Sec. 1256 60/40 LT/ST treatment. Mined, staked, forked, found, won, earned coins are ordinary, but depending on the activity could possibly be self-employment income subject to 15.3% self-employment tax. Just make sure you're taking allowable expenses (computer equipment, home office, subscriptions, etc.)

But if it is self-employment income (for example, you are in the business of mining) then it opens up options to create retirement accounts. Why is that important? Because any crypto investing or mining you do in a self-directed retirement account is tax deferred (or tax free if Roth).

Corporate entities provide some planning opportunities with the 21% flat rate. Again, lots of fringe benefits are available here too.

I'm just saying, if a great CPA or Enrolled Agent can save you $20,000+ with strategic tax planning while keeping you out of trouble, why would you skimp on their $2,000+ bill? Seems like a decent ROI.

thomasjonestaxman

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