What are the Tax Reporting Requirements for Cryptocurrency Income in California?
Cryptocurrencies have become a popular form of trading among many investors. However, when investing in cryptocurrencies, an investor could forget that cryptocurrencies have unusual tax reporting requirements. Failing to properly file income taxes for cryptocurrency could lead to a taxpayer having to pay a large tax bill in the future. If you need legal assistance to report your cryptocurrency income, you should consult with an experienced California cryptocurrency tax attorney today. At the NewPoint Law Group, our legal team has decades of combined experience handling complex tax law issues for a variety of clients, and we would be honored to work with you. The NewPoint Law Group is here to discuss the tax reporting requirements for cryptocurrency income in California.
How Tax Reporting Works for Cryptocurrency Income in California
Cryptocurrencies like Bitcoin, Ethereum, Dogecoin, and Litecoin, are digital forms of currency that have become highly popular among investors. One reason for the surge in the use of cryptocurrency is the limited anonymity it offers and the ease for which it allows investors to transfer the currency. For example, a transaction of funds between two parties using cryptocurrency will not require a third-party financial institution to host the transaction.
However, the freedoms offered by cryptocurrency trading are now being more thoroughly examined by tax agencies as there is some potential for abuse. For instance, the difficulty in tracing cryptocurrency transactions makes it easier to use cryptocurrencies for illegal activities like money laundering or even tax evasion.
Determining how tax reporting works for cryptocurrency income can be difficult for taxpayers. This is especially true now that the Internal Revenue Service (IRS) is increasing regulations on income earned from cryptocurrencies. As a result, other tax agencies like California’s Franchise Tax Board may begin to increase the number of rules surrounding the trading of cryptocurrencies.
When examining tax reporting laws for cryptocurrencies, it is vital to remember that cryptocurrencies are taxed as property holdings rather than being taxed as cash. As cryptocurrencies are considered property holdings, the IRS will treat this form of currency as they would a stock. This means that cryptocurrencies are subject to many of the same regulations as stocks, such as requiring that initial offerings are announced to the public and reported to the government.
Cryptocurrencies being considered as property also means that gaining income from the sale or saving of cryptocurrency can trigger a number of tax reporting regulations. Our firm can help you determine when you are liable for reporting income from cryptocurrencies. To learn more about cryptocurrency tax laws that apply to California residents, you should continue reading and speak with an experienced Roseville tax lawyer today.
Filing a Tax Return for Cryptocurrency Income in California
As a taxpayer and a resident of California, you will be required to report income derived from the buying and selling of Bitcoin and other types of cryptocurrencies. When filing a tax return, a taxpayer will typically have to use a Form 1040A for individual income tax returns or a Form 1040EZ for single and joint filers with no dependents.
As mentioned, cryptocurrencies are treated as property holdings rather than a currency like cash. This means that a taxpayer that earns income from the buying or selling of a cryptocurrency will be subject to the capital gains tax. According to the IRS, a taxpayer is liable for capital gains tax when you realize the profits of the property. For example, if you buy Bitcoin and hold it for multiple months and sell it for $1,000 more, this will trigger the capital gains tax.
Additionally, the capital gains tax rate is subject to change depending on how long it was held by a taxpayer. For example, if an asset is held for longer than one year, the taxpayer could be taxed at a rate of 0%, 15%, or 20%. You should avoid making any assumptions about the tax rate for your cryptocurrency, as it could lead to serious tax repercussions. For example, a taxpayer could end up owing taxes to the IRS or may have to deal with other issues from California’s tax board.
Previously, it was required that a taxpayer must report income that was derived from foreign cryptocurrency transactions. However, this law has been recently repealed, and U.S persons no longer have to file taxes for cryptocurrency held in offshore accounts.
There are other reporting requirements for cryptocurrencies that are not discussed above. If you are having trouble deciphering the tax reporting requirements for cryptocurrency in California, you should contact an experienced tax lawyer as soon as possible. The NewPoint Law Group is available to help you manage your tax liability for cryptocurrency.
Contact Our Experienced California Tax Lawyer to Discuss Cryptocurrency Income Reporting
If you need legal assistance to report your cryptocurrency income in California, you should contact an experienced California tax lawyer as soon as possible. Our firm knows that it can be hard to keep up with tax code regulations, and we are here to help ease the burden of remaining compliant with the tax code. We are dedicated to providing you with the legal representation you deserve. To schedule a confidential consultation to discuss your tax reporting issues, contact the Sacramento tax attorneys at NewPoint Law Group at 1-800-358-0305. You may also schedule an appointment by using our online submission form.