Tax Consultation for Cryptocurrency in California
Cook CPA Group
Bitcoin is a popular form of virtual currency, which is also referred to as “digital currency” or “cryptocurrency,” first used to conduct financial transactions in 2010. Unlike conventional currencies, Bitcoin is unregulated by a central authority, while quasi-anonymous “wallets,” or programs where Bitcoins are stored, create a second layer of privacy for users.
Because of this emphasis on privacy and anonymity, which is one of the key features attracting taxpayers to cryptocurrency, many Bitcoin users avoid reporting their financial transactions to the Internal Revenue Service (IRS). However, sophisticated software allows the IRS and other regulatory agencies to track and analyze transactions recorded in the Bitcoin “blockchain,” which functions like a public ledger. As a result, it is increasingly easy for IRS agents to identify individuals who attempt to avoid filing taxes, paying taxes, or meeting other tax requirements for Bitcoin and similar digital currencies. This can lead to substantial penalties, which the skilled California Bitcoin CPAs of Cook CPA Group can help you avoid or lessen.
Sacramento CPAs Offering Consultations on Cryptocurrency and Bitcoin Taxes
It is crucial for Californians and other taxpayers to understand that the regulatory landscape around Bitcoin is rapidly changing. The IRS is already coordinating with lawmakers and federal agencies, such as the U.S. Treasury Department, to make Bitcoin reporting laws clearer, stricter, and easier for tax authorities to enforce. Individuals and businesses that use Bitcoin or other cryptocurrencies, such as Dash, Ethereum, Litecoin, or Zcash, are increasingly at risk for being audited. An IRS audit could lead to harsh penalties for failing to comply with Bitcoin regulations – regulations that can be confusing, contradictory, and difficult to interpret.
If you have sold Bitcoin, purchased Bitcoin, saved for retirement with Bitcoin, made major purchases using Bitcoin, mined Bitcoin, or paid employees using Bitcoin or other cryptocurrencies, it is in your best interests to discuss state, federal, and international tax compliance with an experienced cryptocurrency accountant as soon as possible. Serving individual taxpayers, C corporations, S corporations, limited liability companies (LLCs), and other business entities in the Sacramento-Roseville area, the California Bitcoin accountants at Cook CPA Group can help you plan financially for your business or your family, while working to reduce or eliminate penalties by making sure that you are complying with Bitcoin laws as tax regulations continue to shift. To arrange a free, completely confidential Bitcoin consultation with our knowledgeable Sacramento tax accountants, contact our Roseville CPA firm at (916) 432-2218 today.
Do You Have to Report Bitcoin to the IRS in CA?
As a resident of California or other U.S. states, you may be required to report various Bitcoin transactions to the IRS. Depending on your circumstances, examples of these reporting requirements could include:
- Capital gains reporting requirements
- Foreign income reporting requirements
- Income reporting requirements
Bitcoin Income Reporting Requirements
If you earned Bitcoin income, you may be required to report the income on Form 1040 or Form 1040A (U.S. Individual Income Tax Return), or Form 1040EZ (Income Tax Return for Single and Joint Filers with No Dependents). The date of Tax Day 2018, when your federal income tax return is due, is Tuesday, April 17. However, it may be possible to obtain an extension if you need more time to compile your financial records.
Bitcoin Capital Gains Tax
“Capital gains” are financial gains resulting from the sale of an asset, such as profit resulting from the sale of your home. If you realized capital gains as a result of selling Bitcoins or other types of cryptocurrency, you could be required to pay capital gains taxes on the gains you realized. Capital gains (and conversely, losses) are reported on Form 1040 (U.S. Individual Income Tax Return), Schedule D (Capital Gains and Losses). Schedule D should be attached to your Form 1040.
Bitcoin, FATCA, and FBAR Requirements
U.S. persons are generally required to report foreign income, foreign bank accounts, and other foreign assets once certain financial thresholds are surpassed. This applies to taxpayers who live abroad, as well as taxpayers who live in the United States but maintain bank accounts or hold assets overseas. If you store Bitcoin in an offshore wallet, you may be required to meet several requirements for reporting foreign income and assets, such as filing an FBAR (Reports of Foreign Bank and Financial Accounts), which is otherwise known as FinCEN Form 114, or filing Form 8938 (Statement of Specified Foreign Financial Assets), which is a requirement for certain taxpayers under the Foreign Account Tax Compliance Act (FATCA).
Contact Our Roseville Bitcoin CPAs for Tax Help with Virtual Currency
Even inadvertent failure to comply with Bitcoin regulations can expose a taxpayer to serious financial consequences. If you have bought, sold, mined, saved, or otherwise used Bitcoin or other cryptocurrencies at any time during the past several years, or if you have been paid in Bitcoin or used Bitcoin to compensate employees or independent contractors, you are urged to consult with a Roseville or Sacramento Bitcoin accountant as soon as possible. As taxpayers should keep in mind, the IRS has already obtained legal clearance to investigate thousands of user records on Coinbase – and similar investigations are likely to follow in the future.
It is critical to act swiftly if you have any concerns, no matter how small, about the way you have documented or reported your Bitcoin transactions. To arrange a free Bitcoin tax consultation in California, contact Cook CPA Group online, or call us today at (916) 432-2218.