Zac McClureUpdated at: Aug 18th, 2020

Learn everything you need to know about crypto tax in our Cryptocurrency Tax Guide

Creating a LLC or Corporation for Cryptocurrency

If you’re professionally trading, mining, or earning crypto, then there could be benefits to creating a corporate structure. In this article, we'll run through the pros and cons of creating an LLC or corporation (c-corp) for your crypto activities.

Pro: Write off casualty losses

Unfortunately, losing crypto due to hacks or scams has been historically common in the space. As of 2018, individuals cannot write off these losses as casualty losses. That benefit is only for corporations now. If you trade on exchanges via your LLC or C-Corp, you can write losses from scans or hacks.

Pro: Crypto and mining income can be offset by capital losses.

Let’s say you mined $100,000 worth of ETH at the beginning of 2018 and didn't sell until the end of the year, and now that $100,000 worth of ETH is only worth $10,000. Your loss of $90,000 is a capital loss, but the $100,000 you mined is considered income, so you cannot net them off.

You will still need to pay taxes on that $100,000 even though you only were able to cash out $10,000. If you trade under a corporation, you would be able to use that capital loss of $90,000 to offset that $100,000 in income.

Con: Complexity and Costs

The main con to creating a corporate entity for your crypto activities is the complexity. You may need to hire an attorney to create the entity. If you’re savvy, you can use an online platform like Legalzoom or RocketLawyer to create an entity for less than $500.

Additionally, depending on the state you incorporate, you will have to pay for a registered agent and annual franchise fees. Annual fees can be from a few hundred dollars to up to $800 a year in California. Taxes also become more complex, as you need to file taxes as a corporation. You are more likely to need a CPA with specific corporate tax experience.

Con: Commitment

What if you don’t want to engage in crypto activities anymore? Unwinding a corporation can be a lengthy process. For instance, if you create a corporation in Delaware, you will need to file dissolution documents via physical mail and pay your fee with a physical check. There is no set timeline when you will get your response, so make sure you keep detailed records.

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