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Cryptocurrency Tax Accounting Services
in New Jersey
Cryptocurrency and other digital assets have gone mainstream – and so have the tax responsibilities that come with them. Our CPA firm is at the forefront of cryptocurrency tax accounting, helping clients across New Jersey (and virtually nationwide) properly report and strategize their crypto transactions. The IRS has made it clear that digital assets like Bitcoin, Ethereum, and NFTs are taxable and must be reported . But between trading, staking, airdrops, and DeFi yields, the rules can get confusing. We’re here to demystify it. Whether you’re a casual investor, a high-volume trader, a miner, or involved in decentralized finance, we have the expertise to handle your tax needs accurately and in compliance with the latest regulations. Don’t risk an audit or overpay in taxes – let a crypto-savvy CPA ensure you file correctly and advantageously.
Comprehensive Crypto Tax Preparation
Our crypto tax services cover the full spectrum of transactions:
Trading and Investment Sales:
We will calculate your capital gains or losses for every taxable crypto disposition (selling for USD, trading one coin for another, using crypto to buy goods). We import data from exchanges (like Coinbase, Binance.US, Kraken, etc.) and wallets, using specialized crypto tax software when needed to handle potentially thousands of transactions. We apply IRS-approved methods for cost basis (default is FIFO unless you qualify for specific identification by meticulous records ). Every trade’s gain (or loss) will be categorized as short-term or long-term based on holding period . If you had worthless or lost coins (e.g., an exchange hack or a token that became worthless), we can handle those as disposals or possibly casualty losses.
Income from Crypto:
If you earned crypto by staking, mining, or as an airdrop or fork, we ensure that income is reported properly as ordinary income. For instance, mining and staking rewards are taxable at the time you gain control of the coins. We’ll determine the fair market value at receipt (perhaps using daily price averages or specific time-of-day values from reputable exchanges) and include that in your income. Airdrops and hard forks are also income (IRS Revenue Ruling 2019-24 clarified that). We handle the record-keeping to track these events.
NFTs and Digital Collectibles:
Buying or selling NFTs triggers capital gains rules (if you sell an NFT for more than you paid, that’s a gain). Additionally, the IRS has signaled that some NFTs might be treated as collectibles for tax purposes. That means if an NFT is a collectible (like a piece of digital art), long term gains could be taxed up to 28% instead of 15-20%. We stay on top of this guidance (see IRS Notice 2023-27). If you’re creating and selling NFTs (as an artist or project), that’s another scenario – we can help report that business income and any associated expenses (and discuss optimal business structures or accounting methods for it).
DeFi and Yield Farming:
Income from decentralized finance (interest from lending, liquidity pool rewards, governance token rewards) is often taxable as ordinary income. For example, if you deposit crypto in a lending protocol and receive interest (or additional tokens), that’s income at the time you receive control of those rewards. We will parse through your DeFi wallet transactions, which can be tricky, to identify taxable events. Likewise, converting or wrapping tokens (like wrapping ETH) – usually not taxable if it’s the same owner and just a protocol change – whereas swapping tokens is taxable. We carefully evaluate each type of DeFi transaction.
International Issues:
If you held crypto on foreign exchanges or earned crypto abroad, we consider FBAR/ FACTA filing needs. Currently, FinCEN has proposed but not yet enforced FBAR for foreign crypto accounts, but the safe approach is often to report if above $10k. We monitor this area as rules evolve and will guide you accordingly.
After organizing all this data, we prepare the necessary tax forms. This typically includes Form 8949 and Schedule D for capital gains, Schedule 1 or Schedule C for various crypto incomes (depending on whether it’s hobby vs business), and any other applicable forms. We also ensure you correctly answer the infamous “digital assets question” on the Form 1040 (the Yes/No question about crypto that the IRS now asks every taxpayer). When we’re done, you’ll have a complete and IRS-ready crypto tax report.
Strategies to Legally Reduce Crypto Taxes
Beyond just reporting, we assist with tax planning for crypto:
Tax-Loss Harvesting:
Crypto is particularly suited to this because, unlike stocks, crypto was (until 2023) not subject to wash sale rules (this could change if laws change). This means you can sell losing positions by year-end to realize losses for tax purposes and immediately rebuy a similar position if you want, locking in a loss for your taxes without staying out of the market. We identify opportunities in your portfolio to harvest losses to offset gains. If you have more losses than gains, up to $3,000 can offset other income and the rest can carry forward. We’ll guide timing of sales in December accordingly. (Note: wash sale rules might be extended to crypto in the future by Congress; we’ll adapt planning accordingly.)
Holding Period Planning:
If you have large gains, we might discuss holding onto assets a bit longer to get into long-term gain territory (over one year) for a lower tax rate. For high-income individuals, long term rates (15-20%) plus 3.8% NIIT can still be much better than short-term rates (which are taxed as ordinary income up to 37%). We’ll analyze your situation – sometimes cashing out slightly slower to hit long term status can save significant tax.
Using Retirement Accounts:
Did you know you can get crypto exposure in certain IRA or 401(k) accounts (through specialized custodians or Bitcoin ETFs)? If appropriate, we’ll discuss shifting some investments into tax-advantaged accounts so that gains grow tax-free or tax-deferred. For instance, holding a portion of crypto in a Roth IRA means no tax on gains – which could be huge if values skyrocket. There are rules and limitations, but as a strategy, it’s worth considering and we help implement it if it aligns with your goals.
Entity Structure:
If you are actively trading or mining as a business, we might consider setting you up as an LLC or S-Corp for business expense deductions or self-employment tax optimization on mining profits (mining as a business means you can deduct equipment, electricity, etc., but also owe SE tax – we analyze best approach). For high-frequency traders, treating it as a qualified business might allow more deduction of trading-related expenses (though the bar is high to be considered a trading business). We’ll evaluate if any professional trader status or other designations could benefit you.
State Tax and Relocation:
New Jersey taxes crypto gains like any other capital gains. If you’re considering moving to a lower-tax state (or if you moved in the year), we plan around allocation of income to potentially save state taxes. We also consider if any Opportunity Zone investments or other tax deferral mechanisms (like installment sales if you’re selling a big crypto position via owner financing) could apply.
Our approach is proactive: as the year goes on, we prefer to meet before year-end to estimate your crypto tax position and suggest moves to minimize the tax hit. Crypto markets can be volatile; we want your tax strategy to be agile as well.
Navigating IRS Rules & Compliance
The IRS treats crypto as property, not currency, which means general tax principles of property apply: you incur gains or losses when disposing of it. We make sure to apply this consistently. We’re also fully aware of specific IRS rulings and guidelines:
IRS Notice 2014-21:
The foundational guidance that first stated virtual currency is property and that mining yields taxable income. We follow its Q&A for things like how to determine value and that wages paid in crypto are subject to withholding, etc.
IRS FAQs and 2021 Infrastructure Bill Updates:
We stay current on new definitions (the term “digital assets” was codified, expanding reporting requirements). Starting with tax year 2023 and beyond, exchanges will issue Form 1099s for crypto (1099-B or the new 1099-DA) – we will reconcile those with your records.
Revenue Ruling 2023-14 (Staking):
Very recent and important: it clarified that staking rewards are taxable when you gain control of them (not at the end of the stake or only when sold, as some hoped). We will ensure staking income is included in the correct year and help you plan liquidity for the tax on those rewards (since you might not have sold the coins but owe tax on them).
Notice 2023-27 (NFT Collectibles):
As mentioned, we consider if your NFTs could be collectibles under §408(m), impacting tax rates for long-term gains. This is an evolving area – we actively comment on and follow IRS announcements so we can advise you.
DeFi Tax Treatment:
While no official IRS DeFi-specific rules exist yet, we apply existing rules analogously. For example, liquidity pool token swaps – we treat adding liquidity as a trade of your coins for an LP token, etc., unless future guidance says otherwise. We’re on top of proposed legislation and global trends that might influence U.S. tax policy in this arena.
Recordkeeping:
The IRS expects detailed records for crypto (dates, values, what was received/given). We help set up good recordkeeping or sort through your existing records. If you’re audited, having a CPA prepared crypto report can be invaluable. We can defend our calculations with source documents (transaction logs, exchange CSVs, blockchain explorer printouts) as needed.
Ultimately, compliance is critical – the IRS has increased enforcement in crypto (e.g., sending warning letters and adding that 1040 question, indicating it’s a high priority). We make sure you’re fully compliant, disclosing required info, but also not overpaying.
Crypto Tax Problem Solving
The IRS treats crypto as property, not currency, which means general tax principles of property apply: you incur gains or losses when disposing of it. We make sure to apply this consistently. We’re also fully aware of specific IRS rulings and guidelines:
Amending Past Returns:
Maybe you didn’t report crypto trades from 2018 or 2019 because you didn’t know you had to. Or you just found records from an old exchange. We can prepare amended returns (1040-X) to report omitted crypto gains or claim losses. It’s better to amend proactively than to wait for the IRS to find it. The IRS has data from exchanges (like Coinbase’s 1099-K in the past, and soon more 1099-B reporting), so coming clean via amendment can reduce penalties.
Responding to IRS Notices:
If you received one of the IRS crypto letters (6173, 6174, 6174-A) or a CP2000 notice matching an exchange report to your return, we handle it. We’ll determine what the IRS thinks is unreported and craft a response with supporting documents or amended returns. As your CPA, we can also formally represent you if needed, interacting with the IRS to resolve the issue.
FBAR/International Compliance:
If you held significant crypto on offshore exchanges (like maybe Binance international before US customers were restricted) and didn’t report it, we help assess if an FBAR or FATCA Form 8938 was required and catch up on those filings. There are specific thresholds (e.g., Form 8938 kicks in at $50k single/$100k joint for many taxpayers). Penalties for not filing these can be high, so we want to ensure compliance. Currently, as noted, the official FBAR rule for crypto is pending, but we stay alert to changes.
Working with Tax Authorities on Complex Cases:
In situations of audits or gray areas (like determining fair market value for a thinly traded token on the day you got it), we use reasonable methods and are prepared to defend them. The IRS often just wants consistency and good faith efforts to comply. We provide just that. If you feel your prior accountant was not comfortable with crypto or perhaps mishandled something like a like-kind exchange (we’ve seen some who incorrectly tried to treat crypto trades as tax-free like-kind in pre-2018 years, which the IRS does not allow), we’ll fix it. Crypto tax is a new field, but we have immersed ourselves in the regulations and community (we follow tax conferences, IRS updates, AICPA recommendations on digital assets, etc.) to be able to solve these issues.
Our Digital Asset Tax Services
Trade Tracking & Capital Gains Calculation:
We help aggregate your transaction data across exchanges (Coinbase, Binance, Kraken, etc.) and wallets. Using specialized crypto tax software and manual review, we calculate your cost basis and holding period for each disposal, then compute your capital gains and losses. We handle high-volume traders with thousands of trades as well as casual investors. Wash sale rules currently don’t apply to crypto (though legislation may change this), but we still harvest losses strategically where possible. All this gets reported on IRS Form 8949 and Schedule D. We ensure that every taxable trade is accounted for in USD terms, as required.
If you mine cryptocurrency or earn staking rewards, we’ll account for that income properly. The IRS requires reporting the value of mining rewards as of when they are “dominion and control” received. For example, each time you successfully mine a block or receive a staking payout, it’s income. We’ll aggregate those (often many micro-transactions) for you. Recent IRS guidance (Rev. Rul. 2023-14) clarified that staking rewards that are locked (like ETH2 rewards before the merge) aren’t taxable until you can access them. We stay current on such developments. If you mine as a business, we help you claim deductions for electricity, equipment, and other costs, and we’ll report the net income on Schedule C, including handling self-employment tax. If mining is a hobby, we’ll report the income appropriately on Schedule 1. We’ll also track your basis in mined coins (the income recognized becomes the coin’s cost basis) so that when you sell them later, you only pay tax on the additional gain.
The rise of NFTs and DeFi protocols adds complexity to taxes. We have experience in NFT taxation – for NFT investors, each sale of an NFT for crypto or fiat is a capital transaction (we determine gain/loss by subtracting your purchase cost). Purchasing an NFT with crypto is also a taxable event for the crypto spent. We also stay tuned to IRS guidance on collectibles: certain NFTs might be treated as collectibles (max 28% tax rate) if they represent a collectible asset, per Notice 2023-27. On the DeFi side, we handle things like lending interest, liquidity pool rewards, token swaps, and airdrops. For example, if you deposit ETH and get back a protocol token (cETH, etc.), that can trigger a taxable event (as a trade); and earning yield or interest is ordinary income. We will decipher all those transactions from your wallet histories and DeFi platform reports. Our familiarity with platforms like Uniswap, Compound, Aave, OpenSea, etc., allows us to correctly categorize and report DeFi and NFT-related activities which many traditional preparers might struggle with.
Why Choose a Crypto-Savvy CPA
Cryptocurrency taxation is a niche that not every accountant understands. By working with a CPA who specializes in crypto:
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You avoid costly mistakes (like misreporting a taxable event or missing one entirely). For instance, many people don’t realize trading one crypto for another is taxable – we make sure it’s not overlooked.
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You get the benefit of tax-saving strategies tailored to crypto. For example, we can guide you on using specific identification vs. FIFO for selling crypto (if supported by your records) to minimize gains, or how to time your sales around the 1-year mark for long-term rates.
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We provide representation: In the unlikely event of an IRS question or audit, as a CPA firm we can represent you and provide supporting documentation. We keep detailed workpapers of how each figure was calculated, giving you peace of mind.
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We speak your language: Whether you’re yield farming in DeFi, minting NFTs, or just dollar-cost averaging into Bitcoin, we understand the tech and the terminology. This makes the process smoother – you won’t have to educate your accountant about what a hard fork or liquidity pool is.
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Up-to-date knowledge: Crypto tax rules are evolving. The IRS and Congress are continually releasing new guidance (e.g., new broker reporting requirements under the Infrastructure Act, potential changes to wash sale rules, etc.). We actively follow these developments. For instance, we know that starting 2025, exchanges will issue Form 1099-DA to report your transactions to the IRS, so it’s more important than ever to correctly report now. We ensure our clients are prepared for what’s coming.
Staying Compliant with Evolving Regulations
The regulatory landscape for digital assets is in flux. But one thing is clear: the IRS expects taxpayers to report their crypto activity, and enforcement is ramping up (the IRS has pursued John Doe summonses on exchanges and even launched a "crypto compliance initiative"). By partnering with us, you’re taking a proactive stance. We help you comply with current requirements – for example, checking “Yes” to the 1040 question if you had any crypto transaction , and reporting all income and gains – and we keep records in a way that will satisfy future needs. We also advise on international aspects: if you hold crypto on foreign exchanges or earn from foreign crypto investments, there may be FBAR or FATCA reporting (FinCEN has proposed including crypto in FBAR reporting). We’ll guide you so you don’t run afoul of those rules either.
In short, our service is not just about preparing a tax return; it’s about being your ongoing advisor in the cryptocurrency space, helping you keep what you earn within the bounds of U.S. tax law, and sleeping well at night knowing you’re on the right side of compliance in this exciting but complex arena.
Serving NJ Crypto Investors & Businesses
While we serve clients across the U.S. (because crypto tax can largely be handled remotely), being based in New Jersey gives us a local touch. If you’re in NJ and prefer an in-person consultation to go over your crypto situation, we can do that. If you’re a business owner starting to accept crypto or perhaps a blockchain startup in the NJ/NY area, we offer both tax and advisory (accounting systems for crypto, valuations, etc.). We also understand NJ state tax nuances – for example, NJ conforms to federal treatment of crypto, but if you’re a NJ resident with crypto income, we ensure it’s reported on your NJ return in the right category (NJ doesn’t have capital gain rates – all income is essentially taxed as ordinary, but gains are still reported appropriately). We also can advise on NJ’s stance on things like sales tax (generally no sales tax on crypto itself, but using crypto to buy goods is just like using cash in terms of sales tax – the goods are taxable or not as usual).
Our firm’s focus on technology (we’re a modern, cloud-based firm) pairs well with crypto clients – we leverage digital tools to make the process smooth. Secure upload of giant CSV files? No problem. Need a late-night Zoom because you also have a day job? We get it. In short, if you’re looking for a knowledgeable partner to handle your crypto taxes, you’ve found the right CPAs. We’ll remove the headache and uncertainty, so you can invest in crypto with confidence that your tax obligations are under control.
FAQS
Q: I didn’t sell any crypto this year, but I bought some and moved it to my wallet. Do I have to report anything?
A: Generally, if you simply bought crypto with dollars and just held it, that alone does not trigger a taxable event (and you would answer “No” to the 1040 crypto question if that’s truly all you did). You do not report purchases or holdings on your tax return. However, make sure you had no other taxable crypto events. If you only transferred coins between your own wallets/accounts, those are not taxable either (just keep records of the transfers). But if you received any crypto as income or rewards, or traded/sold any, that would need reporting. We can review your activities to be certain.
Q: Can you help me even if I used an exchange that went bankrupt or I lost access?
A: Yes, we can. We will do our best to reconstruct your transaction history from any records available (account statements, CSV exports you might have, blockchain explorers for withdrawals, etc.). If you have losses from a bankruptcy or scam (like coins stuck on a failed exchange), there may be ways to claim a deduction or loss – for instance, a capital loss or even a theft/casualty loss depending on circumstances. These situations are complex, but we stay current on guidance (the IRS recently issued a memorandum on certain crypto theft losses). We’ll work with you to maximize any allowable loss and ensure proper documentation.