Hello,
I use QuickBooks to track my small business activity, which has included mining of Cryptocurrency in the last few years. I am running into some confusion and hoping to get some answers.
Here is the background:
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- I am located in the USA
- My business is set up as a 2 member partnership with just myself and my wife as partners (Form 1065 for tax purposes)
- I use TurboTax Business to file my taxes.
- Initially, I contributed cash as well as cryptocurrency to the business. I used the market value of each token at the time of transfer to my business as a capital contribution.
- In addition to the contributed coins (contributed property), I also purchased computer equipment for the business, which has been used for mining.
Accounting So far:
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- Per IRS Guidelines, I have kept track each year of the earnings from mining as self-employment income denominated in US Dollars (calculated using Bitcoin.tax). So for example, let's say that I received 0.1 ETH each month, then I ended up with a report (from Bitcoin.tax) that shows the value of that reward in USD as income.
- After receiving mining rewards mentioned above, I have accumulated ETH as an asset held by the partnership.
- I understand (believe) that each mining reward payment creates a cost basis for the accumulated ETH (e.g. the 0.1 ETH received on a specific date with Valuation of ETH = X represents a cost basis of X*0.1 in USD. This means that if I was to sell the ETH, I would need to calculate capital gains for each portion of the ETH which corresponds to the basis on the day it was received from mining).
- Lastly, earlier this year, I transferred ETH back to my personal Coinbase account in order to sell it. So, in effect, the business did not sell the ETH, but instead, it was transferred back to the partners (my wife and me). We then sold the ETH for a profit (Capital Gains).
My Questions:
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1. What is the best way to track of the accumulated Crypto coins as assets (currently I just show the income in USD, but not the actual total of each coins held (e.g. 0.1 ETH earned per month would be worth 1.2 ETH at the end of the year. How best to track this in QuickBooks)? If treated as property, then can I simply track the value of all my crypto in USD terms and adjust (increase or decrease manually at the end of each year based on market value)?
2. Since the ETH was transferred back to the partners, I believe this is considered to be a distribution/capital draw by the partners. But how do I account for that? Do I enter it as a sale and have the partnership recognize the capital gains? Or so I simply convert the value of the ETH to USD and then consider it a distribution to the partners? (How would this be handled if the asset being transferred was a stock or a gold nugget instead of crypto)?
Thank you!
