Austin Tax Blog


Taxpayers are aware of the fact that the calculation of stocks, real estate, and capital assets is never easy. With the rise of numerous cryptocurrencies in the financial market, the IRS wants to make sure that taxpayers pay their fair share of crypto taxes.

The IRS is swifter than ever when it comes to cracking down on people that forge fake documents or don’t report their cryptocurrency taxes. In the middle of 2019, IRS started a campaign and sent roughly 10,000 letters to American taxpayers regarding new instructions to deal with digital assets.

What’s even more interesting is that the IRS hadn’t made a new ruling about crypto taxes since 2014. So, it makes even more sense why small businesses should know everything related to crypto taxes to avoid problems beforehand.

Financial Market Condition on Crypto Taxes

Although the value of a cryptocurrency like Bitcoin is worth more than ever, small businesses are oblivious to basic federal tax guidelines of most digital currencies like ZCashLitecoin, and Ethereum. Yes, there will always be more additional instructions when it comes to crypto taxes. Still, business owners should be careful about their investments and online inventory records that are stored on digital currency.

Business owners need to see crypto taxes just as ordinary taxes. Though there aren’t extensive tax guidelines available on every cryptocurrency by the IRS, there’s an opportunity for business owners to capitalize on gains. That said, the popularity of cryptocurrencies also means a multitude of changes in the foreseeable future.

What are the New Cryptocurrency Reporting Guidelines by the IRS?

As of now, the IRS wants to straight new awareness campaigns to inform taxpayers about the advantages and risks of crypto taxes. The underlying goal of the IRS is to minimize the accidental criminal neglect of the crypto taxes.

Whether you are a small business or run a major corporation, denial to pay crypto taxes results in hefty penalties and more interest. It is no wonder several companies are already susceptible to criminal prosecution.

The IRS wants to inform business owners about their tax duties when it comes to the cryptocurrencies. Sure, the new tax guideline sets explicitly new standards for crypto taxes. Unfortunately, small business owners often get confused about various issued guidelines by the IRS.

Concurrently, small business owners should know about airdrops and hard forks. It’s a method that divides the blocks of digital currency and acquires exact information of the transactions. Your task is to evaluate whether or not airdrops or hard forks of, say, Bitcoin is changing your annual income.

Crypto Taxes Fundamentals

It is vital to understand that digital currency is viewed as a capital asset that taxpayers can exchange for into cash. Remember, the old school method to calculate capital gains and losses hasn’t changed. Keeping that in mind, here are some of the details for your small businesses to deal with crypto taxes:

  • Calculation of Capital Gains

You can find the sum value of your digital currency throughout the year. In fact, you can even modify the cost associated with your cryptocurrency for a specific time. If you conduct transactions via your particular cryptocurrency, don’t forget to you will have to compute the added value of all bought items.

  • How to Claim Cash During Gain or Loss

Your sum losses are higher than your identified gains. It means taxpayers’ will likely have a capital loss. Small business owners can get approximately $3,000 in losses. Also, you should remember that the total cost of losses can reimburse for annual income. What happens when your loss goes overboard the minimum amount? You can transfer the loss to the next year.

Usually, taxpayers worry about at the start of the year to prepare and file their taxes. Conversely, small business owners will have to keep an eye on cryptocurrency transactions for an entire year to evaluate crypto taxes. Also, you shouldn’t confuse with the rise or decrease of a cryptocurrency value with capital gains.

  • Crypto Taxes Trade and Commission Costs

The crypto tax commission is viewed in the same manner as traditional. Add your purchases and miscellaneous costs throughout the year, and you’re done. Similarly, there’s a low fee on Schedule A for every item purchased. And if you plan to invest in cryptocurrencies, don’t forget to cut the cost from the company tax form.

  • Cash Out Is not Advisable

It would be wise for small business owners to not opt for cash-out in crypto taxes. Small business owners should understand that digital currencies are viewed as a system to buy goods and services. The dilemma comes into the picture when taxpayers can’t figure out whether or not their purchase classifies as a sale.

  • What Makes a Taxable Event?

Usually, the disposition of assets falls under a taxable event. But treat your cryptocurrency in the same manner. Business owners don’t need a third-party to file/report crypto taxes. Why? There’s no involvement of Form 1099-B.

Also, there’s no definitive sum when it comes to the cryptocurrency exchange. Therefore, if your business conducts a crypto transaction, the transfer will be treated as a sale. You can follow the same procedure on the withdrawal of cryptocurrency.

  • Will You Have to Pay Taxes on Capital Gains?

Crypto capital gains can increase the value of your business. However, taxpayers should keep an eye on short-term capital gains rather than long-term that wouldn’t likely accumulate profits.

  • What’s the Current Holding Period for Cryptocurrency?

The period you’ve possessed or used your digital currency would categorize as the holding period. /If you access or hold a cryptocurrency over a year, it’ll be classified as a long-term gain or loss in a taxable year. Contrarily, holding or accessing a cryptocurrency less than a year is deemed as a short-term gain or loss.

  • Don’t Forget to Report Gains & Losses

Business owners of all sizes need to report their total gains and losses in a taxable year on Schedule D form. You can convert the full data of assets to the form Form 1040 afterward. Your filing has nothing to do with the changing units of your cryptocurrency. And that means you would have to input information on Schedule D.

Final Thoughts

The primary issue for small and medium-sized businesses is to find qualified tax specialists who can handle the complicated nature of crypto taxes. Today, crypto tax specialists have an IT background that has assisted various businesses to get capital gains and solve other problems. Contemporarily, no one can deny the fact that cryptocurrencies are here to stay. Therefore, small business owners should follow the IRS crypto tax laws to resolve business issues that are linked with digital currency.