Should I Create an LLC or Corporation for My Crypto Activities?

Zac McClureUpdated at: May 27th, 2021

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. 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: Use capital losses to offset past or future capital gains

Unlike individuals, C-corps can carry back capital losses to offset capital gains. In other words, if a corporation's losses exceed its gains in a tax year, it can use the excess losses to offset previous years' gains. Losses are carried back maximum of three years. If there are still excess losses, they can be carried forward for a maximum of five years. Any excess gains after being carried back three years and forward five years are lost forever.

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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