Connecticut: Crypto Tax Done Right!

Education & Training with Archer Solutions LLC

First, if you own cryptocurrency, the most practical tip I can give you is that you should harvest your losses before December 31. This will reduce your tax and boost your refund. Don’t expect your tax preparer to cook up some magic in 2020 if you ignore this tip.


Now, let’s briefly review the year’s most important crypto updates.


Crypto question on your 2019 Form 1040

We will all have to declare if we “received, sold, sent, exchanged, or acquired virtual currency by any other means” on Schedule 1 of Form 1040. This question will make it harder for audited crypto non-filers to shake off a charge of willful tax avoidance. The IRS is continuing a strategy it first applied on holders of offshore bank accounts, rehashed for crypto because it proved to be winning formula. Those who don’t report or misreport their crypto may be subject to criminal prosecution.


Crypto tax audits are here

Since July 2019, the IRS has been auditing crypto holders after introducing three crypto letters which you can review here. While these letters were framed as “educational letters”, CP2000 tax audit notices have already been mailed out. These notices affect more people than those caught up in the Coinbase John Doe summons of 2016. Letter 6173 promises to list exact years the IRS believes you should have reported crypto on your tax returns. This is not a surprise given that the IRS has been working with crypto forensics firm, Chainalysis, to crack down high-profile cases. The Agency is moving beyond headline-grabbing money laundering cases and into more routine enforcements of tax law involving crypto.

Speaking at a tax conference last month, Don Fort (Chief of Criminal Investigations, IRS) and Paul Mamo (Director of Collections, IRS) were bullish about their ability to target the 25 million U.S. crypto owners who are not reporting their transactions. The IRS will temporarily camp leading IRS crypto (and other) tax agents to any corner of the nation, where they will assist local IRS staff in targeting non-filers in the area.


Taxation of hard forks and airdrops 

The IRS released guidance clarifying that it will tax hard forks and airdrops retroactively. Anyone who has filed crypto tax returns may wish to review how these transactions were reported in past years.


What do all these changes require of crypto owners?


Be proactive

Don’t wait for IRS letters or notices before starting work on your crypto records. At that time, some avenues of engaging the IRS in your favor will have been shut and you may need to hire an attorney, especially if you received Letter 6173. The IRS requires you to keep records of your crypto transactions as they happen (like a receipt), a task that is complicated by lack of uniform reporting practices and forms at crypto exchanges. Reconstructing and reconciling numerous crypto transactions under a tight deadline can be time consuming, expensive, and stressful.


Don’t forget the State

The IRS is not the only agency that demands crypto reports from exchanges. An exchange may be required to send the IRS a 1099K—or some other report—if you had annual transactions worth $20,000. Your State tax authority may demand one as soon as your crypto trading hits as litlle as $600. States do share information with the IRS. The IRS and States are pushing exchanges hard on reporting practices. It may only be a matter of time before what happened to secretive Swiss banks happens to crypto exchanges.

By the way, if you get a 1099K from a crypto exchange, do not pay tax on that amount. There are many deductions that you need to make to arrive at the correct tax. 


Become a prudent investor

Beyond tax concerns, you can't manage what you can't measure. Right now, the best equivalent of a crypto profit and loss statement can only be attained by reconciling your trades across all exchanges and wallets. You also can’t take your gains seriously if you have omitted an entire class of expenses—taxes, penalties, interest, potential legal fees, and the opportunity cost of your time if you are audited. The sooner you start this reconciliation process, the sooner you get the true picture of your investments.


If you have crypto tax questions, or would like to get a head-start on your crypto tax work for 2020, feel free to book a consultation with me here or here. You can also contact me by phone (1-877-632-6829) or by email at

Abraham Kyele King’oo, EA, MBA

Archer Solutions LLC

224 Farmington Avenue, Suite C

EcoSpace Bldg, West Entrance

Hartford, CT 06105

Tel. 1-877-632-6829 


Comments (2)

George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Abraham Kyele Kingoo, EA, MBA good information.  Thank you for sharing it.

Dec 13, 2019 11:54 AM
Reb Linn

The tax issue is of great importance. As far as I know, this is at the level of standard taxes on the profits of exchange transactions. This should be remembered by all who make-money-online using cryptocurrency assets. It is also important to have tax records if your transactions exceed the established qualifications.

Nov 24, 2021 07:40 AM