Cryptocurrency & Tax Implications JAG CPAs & Co Cryptocurrency & Tax Implications Shehan Chandrasekera, CPA Founder at JAG CPAs & Co Associate Director at Houston Blockchain Alliance www.jagcpa.com/shehan Shehan@jagcpastx.com
Houston Blockchain Alliance About me Upcoming Events International Blockchain Congress April 2nd , 2019, Chicago Global Block Builders | Blockchain Conference April 10th , 2019, Chicago American Bar Association Section of Labor & Employment Law’s National Symposium on Technology in Labor and Employment Law April 12th, 2019, Chicago Spring Accounting Expo Preview Webinar April 25th, Online TX CPA Non-Profit Organizations Conference May 20th, 2019, Dallas 2019 Spring Accounting Expo May 22nd, 2019, NRG CPE by the Sea June 12th, 2019, Galveston CPA VC | PE Startups CFO Speaker CPE Instructor Author Houston Blockchain Alliance Media
Background 1990 1998 B-money, Bit Gold 2008 2009 2010 Digicash 1998 B-money, Bit Gold 2008 Financial Crisis 2009 1 BTC = $0.0007 2010 Guy buys 2 pizzas and paid 10,000 BTC ($25), $40 million in today’s value 2011 1 BTC = 1 cent 2012 1 BTC = $100 2014 IRS Notice 2014-21 2017 1 BTC = $20,000 www.jagcpa.com
Charts https://coinmarketcap.com/ https://www.cryptocompare.com/ https://www.coindesk.com/ https://www.coinbase.com/charts www.jagcpa.com
Why do you have to care? One of the most disruptive technologies since the inception of the internet IRS has issued guidance on taxation and actively looking for non- compliance SEC, CFTC, FINRA, FINCEN & other regulatory agencies are actively looking into rules Major investments by big players: JPMorgan, Walmart, IBM, Overstock.com, Microsoft, Facebook & Many more New business opportunities in the compliance field www.jagcpa.com
Simple Definitions Blockchain Blockchain Technology – Peer to peer database system which is immutable and virtually unhackable Token Unit of Value Cryptocurrencies A token which can only be used as a method of exchange. Ex:- bitcoin Security Tokens Derives its value from another asset Utility Tokens Gives owner the right to access future product or service Blockchain Security Tokens Cryptocurrencies Utility Tokens www.jagcpa.com
Taxation - General Only authoritative guidance we have is IRS notice 2014-21 (https://www.irs.gov/pub/irs-drop/n-14-21.pdf) Q&A Format Per this notice, cryptocurrencies are treated as “property” www.jagcpa.com
Investors Investors are individuals who buy and sell crypto assets for speculative purposes Gains and losses are capital (not ordinary) in nature The exchanges will not issue a 1099-Bs 1099-K is issued if: Gross proceeds are more than $20,000 AND More than 200 transactions in the calendar year FIFO is default, LIFO is acceptable as well Use a coin tracking software like BitTaxer. Tracking basis manually is virtually impossible www.jagcpa.com
Investors Poloniex Coinbase www.jagcpa.com
Miners Include in Gross income FMV of the tokens mined as of the date of receipt Sale of mined tokens generates ordinary income (not capital gains) Common expenses/deductions Mining Machines Utility Rent Internet Fees Choice of entity: Schedule C, C Corp, S Corp or LLC www.jagcpa.com
Payer | Payee Tokens can be used as a method of payment for goods and services provided or received Payer = deduction is the FMV of the tokens at the date of disbursement Record disbursement on W-2 or 1099-Misc as appropriate subject to those reporting requirements Payee = include in gross income FMV of the tokens received at the date of receipt Challenges Capital gain/loss at the time of transfer Payroll tax/Self-employment tax obligation will be in USD www.jagcpa.com
Like Kind Exchanges (LKE) A LKE exchange under §1031 is a transaction or series of transactions that allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the sale of the first asset. Not applicable for cryptocurrencies effective 1-1-18 www.jagcpa.com
Charitable Contributions More and more charities are accepting cryptocurrencies as donations Since the IRS defined VC as property, donations are subject to non-cash capital gain property donation rules Capital gain property is generally subject to 20%, 30% and overall 50% AGI limitation If the deduction is more than $5,000, donor must obtain qualified appraisal report www.jagcpa.com
Foreign Reporting Subject to FBAR reporting Subject to FATCA reporting Tokens held in overseas exchanges are considered to be foreign assets $10,000 threshold Subject to FATCA reporting File Form 8938 (Statement of Specified Foreign Financial Asset) as applicable Consider updating foreign reporting paragraph of engagement letters for crypto assets www.jagcpa.com
Associate Director at Houston Blockchain Alliance Thank you JAG CPAs & Co Shehan Chandrasekera, CPA Founder at JAG CPAs & Co Associate Director at Houston Blockchain Alliance www.jagcpa.com/shehan Shehan@jagcpastx.com