Crypto Tax Reporting: What California Taxpayers Need to Know
Cryptocurrency is no longer a fringe investment — and the IRS and California Franchise Tax Board (FTB) are paying close attention. Whether you traded Bitcoin, received crypto as payment, or held digital assets through an exchange, crypto tax reporting is mandatory and mistakes can lead to penalties, audits, and back taxes.
As reporting requirements expand, understanding how crypto is taxed is more important than ever.
How Cryptocurrency Is Taxed
For tax purposes, cryptocurrency is treated as property, not currency. This means that many common crypto transactions trigger taxable events, including:
Selling crypto for cash
Trading one cryptocurrency for another
Using crypto to purchase goods or services
Receiving crypto as income (wages, freelance work, staking, or mining)
Each transaction may result in capital gains, losses, or ordinary income, depending on the activity.
Capital Gains vs. Ordinary Income
Crypto taxation depends on how you acquired and used the asset:
Capital gains or losses apply when you sell or exchange crypto you purchased or previously received.
Ordinary income applies when you receive crypto as payment, mining rewards, staking rewards, or airdrops.
Holding period matters. Assets held longer than one year may qualify for long-term capital gains rates, while shorter holdings are taxed at higher ordinary income rates.
Reporting Requirements Are Increasing
Beginning in recent years, the IRS has significantly expanded crypto reporting:
Crypto questions now appear prominently on federal tax returns
Exchanges issue transaction reports to both taxpayers and the IRS
New Form 1099 reporting rules are rolling out for digital asset platforms
California generally conforms to federal crypto tax treatment, meaning unreported income is visible to both agencies.
Common Crypto Reporting Mistakes
Many taxpayers unintentionally make errors such as:
Assuming crypto-to-crypto trades are non-taxable
Failing to track cost basis accurately
Ignoring small transactions
Forgetting staking or reward income
Relying solely on exchange summaries that are incomplete
These mistakes can trigger IRS or FTB notices years later — often with interest and penalties added.
Why Proper Reporting Matters
Crypto activity is easier for tax authorities to track than ever before. Failure to report accurately can result in:
Back taxes
Accuracy-related penalties
Interest
Increased audit risk
Proactive reporting and documentation significantly reduce exposure.
How All California Accountancy Can Help
At All California Accountancy, we help clients navigate complex crypto tax issues, including:
Transaction analysis and reconciliation
Capital gains and loss calculations
Staking, mining, and NFT income reporting
Amended returns and voluntary disclosures
IRS and FTB audit support
Whether you’re a casual investor or an active trader, accurate crypto reporting is essential.
Disclaimer
This article is for educational purposes only and does not constitute legal, tax, or accounting advice. Consult a qualified CPA regarding your specific situation.
IRS Circular 230 Disclosure: Any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties or promoting, marketing, or recommending any transaction or matter addressed.