by Blockchain Tax Attorney, Experienced Attorneys Representing Clients Nationwide Blockchain and Cryptocurrency Tax Compliance and Litigation, For individuals and businesses, blockchain technology and cryptocurrency open up a new frontier of business opportunities. However, with these new opportunities comes additional responsibilities, including tax obligations. The Internal Revenue Service (“I.R.S.”) has made it clear that it considers cryptocurrency a type of property. Thus, those who deal in cryptocurrency, either as a primary part of their business or as casual traders, must report their transactions. Failure to report cryptocurrency transactions can result in significant underpayment penalties and, in some cases, criminal enforcement actions.
At Oberheiden, P.C., our blockchain tax attorneys have extensive experience handling a wide range of cryptocurrency and blockchain tax matters on behalf of our clients nationwide. Many of our senior attorneys have personal experience working in regulatory and prosecutorial capacities within the federal government, giving us unrivaled insight into how the government handles these cases and what can be done to limit your tax liability.
How Is Cryptocurrency Taxes?
Although bitcoin, Ethereum and other cryptocurrencies are viewed as “currency” by the general public, that isn’t how the I.R.S. sees them. Instead, the I.R.S. considers these assets “property,” much like stocks. In some ways, this creates a more favorable tax environment for investors and businesses in that the tax rate is lower than if the assets were considered traditional earned income; however, this classification also limits the amount one can write off in losses per year to $3,000.
Because cryptocurrency is considered property, the applicable tax rate depends, in part, on how long you hold it. Crypto transactions are either subject to short-term or long-term capital gains tax. A short-term gain is defined as a buy and a sell occurring within 365 days. Long-term gains occur when you sell cryptocurrency after holding it for more than a year.
The short-term gain tax rate for cryptocurrency is the same as for other short-term gains. For example, in 2021, the short-term tax rate ranges from 10% to 37%, depending on your income. The rate for long-term crypto gains in 2021 is significantly lower, ranging from 0% to 20%, again, depending on your income. These rates are scheduled to remain the same for 2022; however, the income threshold between tax rates changes slightly based on inflation.
Keep in mind that you need to report a cryptocurrency transaction whenever you sell or trade the underlying asset. Historically, crypto holders could “purchase” things with their crypto assets, but, in reality, this required the instantaneous conversion of the assets to the U.S. Dollar. Thus, the currency used for the purchase was actually U.S. Dollars. Today, there are more options to purchase things directly with cryptocurrency; without needing to convert the assets into U.S. Dollars. However, whether you convert your crypto to U.S. Dollars or buy something directly with bitcoin or another cryptocurrency, the taxability of the transaction is identical.
Put our highly experienced team on your side
Dr. Nick Oberheiden
Founder
Attorney-at-Law
John W. Sellers
Former Senior Trial Attorney
U.S. Department of Justice
Local Counsel
Joanne Fine DeLena
Former Assistant U.S. Attorney
Local Counsel
Joe Brown
Former U.S. Attorney & Former District Attorney
Local Trial & Defense Counsel
Amanda Marshall
Former U.S. Attorney
Local Counsel
Aaron L. Wiley
Former Federal Prosecutor
Local Counsel
Roger Bach
Former Special Agent (OIG)
Michael Koslow
Former Supervisory Special Agent (FBI)
Chris Quick
Former Special Agent (FBI & IRS-CI)
Kevin M. Sheridan
Former Special Agent (FBI)
Ray Yuen
Former Supervisory Special Agent (FBI)
Timothy Allen
Former Senior Special Agent
Blockchain, Cryptocurrency and Money Laundering
For many, one of the major draws of cryptocurrency is the pseudonymous nature of the transactions surrounding these assets. However, pseudonymous is not the same thing as anonymous, and the federal government has ways of tracking cryptocurrency transactions. This is especially the case in recent years, as the government has taken a hard stance on cryptocurrency money laundering.
Money laundering is an attempt to convert illegally obtained assets into legitimate money. Historically, cryptocurrency has been a haven for money launderers because of the pseudonymity and general lack of understanding surrounding these assets. However, in today’s climate, holders of cryptocurrency should be under no illusions that their transactions are traceable.
Blockchain Lawyers for Small Businesses, Entrepreneurs, and Cryptocurrency Miners
If you operate a small business or cryptocurrency mining operation, you have unique tax concerns that fall beyond the scope of most tax attorneys. From setting up your business entity to logging all relevant transactions to reporting sales to complete your taxes, there are many steps to effectively running a blockchain business. At the same time, given the federal government’s recent focus on the prosecution of blockchain crimes, everything you do will be viewed under a microscope.
For most business owners, it doesn’t make sense to take on the risk of handling these matters on your own. Your knowledge is centered around your business and how to make it profitable. You may even possess a keen understanding of the regulatory environment you operate within. However, unless you also command a detailed knowledge of the ever-changing tax laws and regulations surrounding blockchain businesses, it is best to consult with an experienced blockchain tax attorney.
At Oberheiden, P.C., we represent individuals, entrepreneurs, small business owners and cryptocurrency miners in all aspects of blockchain tax compliance and litigation. We are immediately available to answer your questions, provide you with sound guidance, and advocate on your behalf to the I.R.S. or other federal agencies.
Contact Oberheiden, P.C. for Assistance with Your Blockchain Tax Matters
If you recently received word that you are under investigation by the I.R.S. or any other federal agency or you have questions about how to comply with the I.R.S. cryptocurrency reporting requirements, it is imperative that you reach out to the knowledgeable blockchain tax attorneys at Oberheiden, P.C. Now more than ever, the I.R.S. is on the lookout for tax evasion related to cryptocurrency and blockchain technology. The federal government is looking to make an example out of those who they identify as having intentionally withheld crypto income or committed other blockchain-related tax frauds. At Oberheiden, P.C., we represent crypto investors and blockchain businesses in I.R.S. and criminal proceedings, helping them clear up the situation and minimize—or eliminate—their liability. We can also reduce the chances of criminal charges being brought against you. To learn more, and to schedule a free consultation with a crypto tax lawyer at Oberheiden, P.C., call 866-926-3417 today. You can also connect with us through our online contact form.
