Navigating your Crypto Taxes: Key Advice from a Top CPA

Endaoment’s Head of Partnerships, Alexis Miller, asked some tax season questions to leading crypto CPA, Patrick Camuso of Camuso CPA. We hope this short but rich article enriches your tax season preparation, much like our financial tools can ease your tax worries.

Alexis: Taxes are complicated...and crypto taxes even more so. What's one piece of advice you have for people filing this year?

Patrick: You're right, crypto taxes are a complex and ever-changing landscape. Here are some key points to remember:

  • Due Diligence is Crucial: Before any crypto transaction, research the tax implications thoroughly. Understand how it might impact your tax return. Many overlook this crucial step, leading to complications later. Also, document your tax positions contemporaneously. This means clearly recording the rationale behind your decisions with dates, references, and supporting evidence. This proactive approach can save you time, headaches, and potential penalties in the event of an audit.

  • Accuracy is Paramount: Implement a proper accounting system specifically designed to handle crypto transactions. Due diligence is key when it comes to managing a digital asset accounting system.

  • Stay Updated on Regulations: Crypto tax regulations are fluid. Regularly consult with a qualified CPA specializing in crypto to ensure you're compliant with the latest updates.

Alexis: Are there any good tax strategies for people wanting to minimize their tax obligation?

Patrick: While I cannot offer personalized tax advice, I can share some general strategies to consider, with the caveat that consulting a qualified tax professional is crucial for tailoring them to your specific situation:

  1. Harvest tax losses: Sell losing investments to offset capital gains and potentially      reduce your tax bill.

  2. Hold long-term investments: Capital gains on assets held over a year typically      receive lower tax rates.

  3. Charitable giving: Donating to qualified charities can provide tax deductions,      especially for appreciated assets.

  4. Business deductions: If self-employed, explore legitimate business expenses that      can be deducted.

Remember, tax laws are complex and constantly evolving. Consulting a qualified tax professional can ensure you're utilizing the most effective and compliant strategies for your unique situation.

Alexis: What are the most common mistakes to avoid when filing taxes, particularly with significant consequences?

Patrick: There are two big mistakes I see people make frequently regarding cost basis tracking and future tax liabilities.

Inaccurate Cost Basis Tracking

Failing to accurately track cost basis can lead to hefty tax penalties. Investors should save trade activity from all exchanges and wallets they've used to ensure accurate tax reporting and minimize potential tax liabilities. Regularly updating cost basis calculations helps avoid compliance issues and minimize taxes. Often, we’ll speak with investors that have not tracked their cost basis for several years or have tracked it incorrectly. Although, we can help you fix this issue at Camuso CPA, it’s important to stay up to date and keep your cost basis calculations as accurate as possible. This will ensure that you avoid compliance issues and minimize your taxes by tracking your tax character, cost basis and fees appropriately.

Do Not Hold Future Tax Liabilities in Crypto

It is important to consider your tax liabilities monthly or quarterly to avoid liquidating/receiving BTC, ETH or another cryptocurrency at a high fair market value only to then have it drop significantly in price before you liquidate the crypto to pay your tax liability. To avoid this, investors should convert at least the amount of their tax liability to USD or a stablecoin immediately upon generating income or capital gains from crypto. This will ensure that they have sufficient funds to cover their tax bill regardless of future price fluctuations.

Connect with Camuso CPA on their website. Connect with Patrick on his LinkedIn, Twitter, or follow his YouTube for more Tax Q&A.

A big thank you to Patrick for sharing these insights and big dose of courage to you during filing season.

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Open your own onchain DAF on Endaoment.

Patrick Camuso, Camuso CPA
Patrick Camuso, Camuso CPA

****Any tax advice included in this communication may not contain a full description of all relevant facts or a complete analysis of all relevant tax issues or authorities.  This communication is solely for the intended recipient’s benefit and may not be relied upon by any other person or entity. ****

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