If you own digital asset or you have dependents with digital asset holdings, preparing your tax returns can be challenging. If you actively mine, trade, or invest in digital asset, then preparing your tax returns can be especially tough.
Until recently, the IRS only had limited guidance on the tax treatment for all things digital asset. Yet, taxpayers were expected to fully report everything properly on their tax returns. Now, the IRS is actively targeting digital asset holders and cracking down on those who are not reporting (or under-reporting) their transactions.
Plus, to make things more challenging, the digital asset environment is evolving faster than IRS guidance can keep up. And the information you need for your taxes, such as valuations and statements that summarize details for tax reporting, is hard to come by.
The good news is we can help you. We’ve closely monitored all the IRS guidance on tax treatment of digital assets (which goes back to 2014). And we’ve prepared many tax returns involving digital assets. We’ve even shared our digital asset tax expertise as featured speakers at conferences for attorneys and other tax professionals. If you need help preparing your US tax returns or are facing a tax compliance issue, let us help you.
What You Need for Reporting Digital Asset Holdings and Transactions
It’s important to have a complete, detailed account of your digital asset by wallet (whether electronic or paper). If you have multiple wallets, you’ll need to have an accounting for each wallet whether it is “on blockchain” or “off blockchain.”
Most wallets allow users to download a CSV file. At the end of the tax year, you can download this CSV file. If you have multiple wallets, you’ll need to map any outputs and inputs between wallets.
In addition, review your wallets and exchanges to determine whether any chain splits, known as a “hard forks” or “soft forks,” occurred. Also, determine if any public events, such as airdrops, giveaway events, or token swaps, occurred.
If you are a dealer, trader, or miner, you should engage a tax professional who is familiar with these areas to properly determine your income tax reporting. It is important to determine your accounting method (i.e., FIFO or Specific Identification) and your method of valuation for all your holdings.
Digital asset clients, both individuals and businesses, are some of our most valued clients. We can help you prepare your US tax returns and properly:
- Identify taxable events and report them on your tax returns
- Calculate cost basis and compute capital gains and losses
- Figure out your foreign asset reporting requirements for digital asset held in virtual wallets outside the US
- Identify ways to obtain acceptable valuations
- Understand and report the treatment of currency events, such as chain splits, airdrops, giveaways, token swaps, staking, mining, initial coin offerings (ICOs), like-kind exchanges, installment sales, and wash sales, to name a few.
We can also assist you with other matters, such as:
- Deferring gains via Qualified Opportunity Zones
- Determining value or valuation
- Making proper accounting method determinations
- Handling reporting for children with digital asset holdings
- Preparing Qualified Amended Returns (QAR) under Rev. Rul. 2019-24
Why The Wolf Group?
Since 1983, we’ve worked with clients in the United States and abroad on international tax matters. We have a long history of “cleaning up” complex tax returns, reporting foreign assets, and reconstructing financial records.
Check out our extensive team of CPAs, all with vast international tax experience.
Looking for a Nexia International Partner?
We’re an active member of Nexia International, a global network of independent accountancy, tax and business advisors with over 250 firms around the globe.