The sale or other exchange of virtual currencies (i.e. Bitcoin, Dash, Ether, Zcash, etc.), or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability. Our law firm can assist with federal, state income tax and offshore reporting compliance for bitcoin investors, miners, and day traders in all 50 states.
NOTE: We represent clients who reside inside and outside the U.S. Face-to-face meetings are NOT required.
- Calculating any capital gains due on your virtual currency investments.
- Prepare appropriate filings to submit with your annual tax return.
- Communicate with the IRS on your behalf to resolve any remaining issues or concerns.
A. For federal tax purposes, cryptocurrency is treated as property. General tax principles applicable to property transactions apply to transactions using cryptocurrency.
Q. How is the FMV of cryptocurrency calculated?
A. For U.S. tax purposes, transactions using cryptocurrency must be reported in U.S. dollars. Therefore, you will be required to determine the fair market value of cryptocurrency in U.S. dollars as of the date of payment or receipt. If a cryptocurrency is listed on an exchange and the exchange rate is established by market supply and demand, the FMV of the cryptocurrency is determined by converting the cryptocurrency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied. We recommend you Schedule a Consultation with us to determine how we might help. We do not recommend contacting the IRS on your own.
Q. Do I have gain or loss upon an exchange of cryptocurrency for other property?
A. Yes. If the FMV of property received in exchange for cryptocurrency exceeds your adjusted basis of the cryptocurrency, you will have taxable gain. Conversely, you will have a loss if the FMV of the property received is less than the adjusted basis of the cryptocurrency.
Q. Does cryptocurrency received by an independent contractor for performing services constitute self-employment income?
A. Yes. Generally, self-employment income includes all gross income derived by an individual from any trade or business carried on by the individual as other than an employee. Consequently, the FMV of cryptocurrency received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt, constitutes self-employment income and is subject to the self-employment tax.
Q. Does cryptocurrency paid by an employer as remuneration for services constitute wages for employment tax purposes?
A. Yes. Generally, the medium in which remuneration for services is paid is immaterial to the determination of whether the remuneration constitutes wages for employment tax purposes. Consequently, the FMV of cryptocurrency paid as wages is subject to federal income tax withholding, Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2, Wage and Tax Statement. Because every situation is different, we recommend you Schedule a Consultation so we can provide a fixed-fee quote.