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Cryptocurrency FAQs

2017 was a 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 an use the loss to offset the capital gains.

Capital Gains & 1099B Taxation

Capital gains are common for our client base & may result from:

· Equity compensation, vested shares, RSUs, etc.

· Sale of a primary residence or rental property

· Liquidation of stock portfolio or inherited assets

· Sale of business interest or sale of the entire company

For these types of situations, we are frequently approached with the following questions:

· How much tax should I set aside for this proposed situation (planning)?

· Are there any tax-saving strategies for me available for me to limit my capital gains?

· Can I use tax-loss harvesting techniques to optimize my tax obligation?

· Can you assist with filing my annual tax return?

· Should I make estimated tax payments, and if so, how much?

· How are state taxes computed?

· Are there better tax outcomes if I wait?

· If I am selling a rental property, how is depreciation recapture accounted for?

· If I am selling inherited assets, what is my “cost basis?”

· Can I construct a plan for more than one year of equity vesting, exercises, and sales?

CPA Income Verification Letter

Sometimes, the lender or landlord also requests this CPA letter to be notarized (the CPA must sign in front of a notary).

With the right disclaimer, it is possible to both meet the paperwork and compliance needs of the bank while also preserving the integrity of the CPA.

The types of persons being asked for such types of letters include:

Contractors
Those paid on 1099
Persons owning a single-member LLC or other small business
Freelancers
Self-employed individuals

If you have been asked for this type of income verification letter, please contact us below and we will complete it for you. We serve all 50 states and are Federally licensed.

Household employee but no payroll

So, you had a household employee (nanny, caretaker, whatever you want to call it) and never ran payroll.

You may not have issued a 1099, any 941s, any W2 or W3. You may also not have this person’s SSN or ITIN number.

This is a very common situation. None of this is to scare you, just to list out the issues that sometimes arise. Here is a quick run down:

If you had a household employee, before hiring the person, you should have registered with at least several of the following:
- The state as an employer
- Workers Compensation
- Disability Insurance
- Unemployment Insurance
You should also have been filing 941s and possibly other quarterly forms as well as annual 940s, W2s, and W3s
If you attempt to retroactively file these items now, you will likely be penalized by many of these agencies.
Filing a 1099-NEC would also not be correct, since the person was technically an employee and misclassifying them is a bit of a risk with the state department of labor or any of the agencies listed above.
The agencies above normally only find out about unregistered employees when the household employee goes to file for unemployment, at which point the state questions how there is unemployment if they do not have record of your being an employer in the first place. This is an area that some states are aggressive with, since the withholdings that go along with payroll go into state pools used to fund disability, workers comp payments, unemployment benefits, and other items. When employers “skip out” on paying into these funds (by not running payroll), some states file penalties.
As a licensed professional, I cannot tell you to ignore the situation, however, there is no perfect solution & I generally ask for clients in this position to schedule a quick call to review what most practical people do when they are faced with this dilemma. Please let me know if you are interested in booking a consulting session.

The good news: we can walk through some practical ideas on what may be best in this situation (and most clients end up with no issues with the state or IRS).

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