Reporting Cryptocurrency

[ETax847]

Is there a new tax form where Cryptocurrency is to be reported? I thought there was something new with the reporting of it for the 2019 filing season, but cannot seem to find any info on it.

[grandmabee]

I think it just goes on Schedule D & 8949

[Lee B]

At the top of Schedule 1 of the 2019 Form 1040 is the following question:

"At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?  __Yes ___No"

More work for all of us and more exposure of risk !

[Max W]

Unless a client keeps very good records, tax reporting of cryptos is going to be a nightmare from hell, worse than reporting stock sales where basis is not provided.

Because of the trading of one coin to another, the basis tends to get lost.  On top of that, each coin has to be converted to dollars and each type of coin has its own conversion rate which varies on a daily basis.

There is software designed to handle a lot of this, but you will still have to know when each coin was acquired, so records have to kept going back several years.

The reporting is done on Sch D/8949

Some crypto coins issue a 1099-K, but usually for only large amounts.  The 1099K only shows the sales and if this is not reported, the IRS will issue a CP2000.

 

[EricF]

Per the form instructions, if a taxpayer is not otherwise required to complete Schedule 1, he does not need to include Schedule 1 with the return just to answer "no" to the virtual currency question.  Anyone filing Schedule 1 needs to answer the question, and of course, if the answer to the virtual currency question is "yes", the taxpayer needs to file Schedule 1 to answer the question.

[ETax847]

Thanks guys! Appreciate the help.

[Matthew in the PNW]

On 1/15/2020 at 10:05 PM, Max W said:

Unless a client keeps very good records, tax reporting of cryptos is going to be a nightmare from hell, worse than reporting stock sales where basis is not provided.

Because of the trading of one coin to another, the basis tends to get lost.  On top of that, each coin has to be converted to dollars and each type of coin has its own conversion rate which varies on a daily basis.

There is software designed to handle a lot of this, but you will still have to know when each coin was acquired, so records have to kept going back several years.

The reporting is done on Sch D/8949

Some crypto coins issue a 1099-K, but usually for only large amounts.  The 1099K only shows the sales and if this is not reported, the IRS will issue a CP2000.

 

Yes, I just researched this and determined a "nightmare from hell" is as good a parallel as we can draw. 

The IRS just released as well that conversions are also taxed. Any coin (stake) earned during "mining" also needs to be reported as ordinary income under "Other Income". So I created a spreadsheet to track basis and got three conversions into a 43 transaction year and said "STOP!". I will never be able to charge for this.

I'm not even sure how to do the currency conversion peice yet.

 

The IRS has sure put a lot of burden on our shoulders.

[Margaret CPA in OH]

If any client EVER acknowledges bitcoin transaction, they will no longer be my client.  That is simply beyond my expertise or interest. 

 

[Matthew in the PNW]

I just realized this is 2021  I guess my mind just blanked when I read 2020 *shivers*

I agree Margaret, if it were my call.

[Max W]

There are a number of companies that provide software for tracking and calculating cryptos - Koinly, TaxBit, CoinTrack, Cryptotrader.

 

 

[jklcpa]

Has anyone looked at the Bitcoin investment that Paypal has.  I have one client that says he bought some in Jan of this year, and the Paypal site says it does provide basis information.  Whatever investment this is, it isn't like owning Bitcoin directly, and it can't be used to directly pay for anything.  To me it sounded more like a mutual fund. 

[Matthew in the PNW]

18 minutes ago, jklcpa said:

Has anyone looked at the Bitcoin investment that Paypal has.  I have one client that says he bought some in Jan of this year, and the Paypal site says it does provide basis information.  Whatever investment this is, it isn't like owning Bitcoin directly, and it can't be used to directly pay for anything.  To me it sounded more like a mutual fund. 

I haven't heard of that myself JKL.

 

Max, do these software providers simply offer a place for the holder to enter the information each time there's a sale, or is it more like they agree to let the software track their individual investments on an ongoing basis in order to keep real time information? I ask because I know my clients wouldn't track that by inputting each sale themselves.

[Sara EA]

It is up to the CLIENT to keep track of purchase and sales prices.  These change by the second, not by the day.  Client is welcome to invest in software, or if s/he uses an exchange, that data may be provided to them.  We tax pros cannot do this for them.  It is possible.  I have a client who mines crypto and actually keeps track of electric usage.  This year he mined/bought/exchanged/sold so much he was ready to throw in the towel and just pay tax on the whole thing.  When I reminded him that his income would soar by millions, he decided to invest the time.