Cryptocurrency and Bitcoin Tax Attorneys | Roseville, CA

How Bitcoin and Cryptocurrency Are Taxed

The IRS treats cryptocurrency as property, not currency, for federal tax purposes. This means that virtually every disposition of cryptocurrency is a taxable event that must be reported on your federal income tax return. California conforms to federal treatment, so cryptocurrency transactions are also subject to California income tax.

Taxable events include selling cryptocurrency for fiat currency, exchanging one cryptocurrency for another, using cryptocurrency to purchase goods or services, and receiving cryptocurrency as income from mining, staking, airdrops, or other sources.

Capital Gains and Losses on Cryptocurrency

When you sell or exchange cryptocurrency, the gain or loss is calculated as the difference between your cost basis (typically the price you paid) and the fair market value at the time of the transaction. The character of the gain — short-term (held one year or less) or long-term (held more than one year) — determines the applicable tax rate.

For active traders and businesses that receive cryptocurrency as payment, the volume of transactions can make tracking cost basis and gains extremely complex. Proper record-keeping — including transaction dates, amounts, and fair market values — is essential.

IRS Cryptocurrency Enforcement

The IRS has significantly increased its cryptocurrency enforcement efforts. All federal income tax returns now include a question asking whether the taxpayer received, sold, or exchanged digital assets during the year. The IRS has served John Doe summonses on major cryptocurrency exchanges — including Coinbase, Kraken, and others — to obtain account holder information. Unreported cryptocurrency transactions carry the same penalties as any other unreported income.

Correcting Past Reporting Errors

Taxpayers who have failed to report cryptocurrency transactions in prior years have options to come into compliance, including filing amended returns and, in cases of significant unreported income, pursuing voluntary disclosure. Acting proactively — before the IRS initiates an inquiry — generally produces better outcomes.

NewPoint Law Group's tax attorneys assist individuals and businesses in Roseville and throughout Northern California with cryptocurrency tax reporting, compliance, and dispute resolution.