The rapid adoption of cryptocurrency into the financial operations of businesses has transformed how accounting services function as well. This is because crypto is a digital asset that is recognized as property for tax treatment. This complicates matters since crypto is also a highly volatile asset with changing fair-value market prices. So, keeping track of crypto transactions requires specialized services from crypto tax experts and crypto bookkeepers who are proficient in Crypto Tax compliance and crypto financial management. This article explores taxable and non-taxable events in cryptocurrency and how businesses can benefit from crypto accounting services and crypto transaction reconciliation.
Taxable Events in Cryptocurrency
Taxable events occur when a cryptocurrency transaction results in a realized gain or income. There are several ways in which a taxable event can occur with a digital asset like crypto.
If you sell crypto for fiat currency, then the transaction is subject to capital gains Crypto Tax. In addition, engaging in crypto-to-crypto trades where you exchange one cryptocurrency for another is also a taxable event. This is because the IRS considers this as a disposition of assets.
In addition, payments made using cryptocurrency are also taxable events as they are considered as a sale of the asset. In such cases, tax obligations should be met based on the fair market value of the crypto at the time of the transaction.
If you earn crypto income employing mining, staking, or as payment for services, then the earnings are classified as ordinary income and Crypto Tax accordingly. With crypto being treated as property, keeping track of taxable transactions requires the expertise of a crypto bookkeeper who is aware of how each transaction should be reported and taxed.
Non-Taxable Events in Cryptocurrency
Non-taxable events do not generate immediate tax liabilities because they do not involve a realization of gains. According to the laws put forth by the IRS and similar Crypto Tax authorities, non-taxable events are those that don’t result in a change of value, ownership, or usage of an asset. As a result, there is no realized gain or income.
If you purchase and hold cryptocurrency, no taxation can take place as no profit or loss can be measured and taxed. In addition, crypto bookkeepers identify activities like transferring cryptocurrency between your wallets as non-taxable events.
Receiving crypto as gifts is also not Crypto Tax since the recipient has not earned it or realized a gain. Similarly, donating cryptocurrency to a qualified nonprofit organization is classified as a charitable act that is exempt from taxation and is even eligible for deductions.
How Crypto Accounting Services Benefit Businesses
Crypto bookkeeping and crypto accounting services are needed to evaluate the taxable and non-taxable crypto events in your business for accurate crypto transaction reconciliation. Tracking the fair market value, cost basis, and transaction details for every single crypto activity is challenging. This is why crypto accounting services ensure accurate crypto transaction reconciliation through financial reporting.
In addition, a crypto bookkeeper’s understanding of crypto tax laws is essential for businesses to identify their taxable and non-taxable events. Crypto bookkeepers ensure compliance with these tax laws while minimizing tax liabilities.
As a result of proper record-keeping facilitated by crypto transaction reconciliation services, businesses can handle audits with confidence, reducing risks of penalties or other legal complications that could end up being more costly than hiring crypto bookkeeping and tax planning services from a crypto accounting firm.
