What are the California tax reporting requirements for income received from cryptocurrency transactions?

California treats cryptocurrency as property for tax purposes, meaning you must report gains or losses from transactions on your state income tax return, similar to your federal return. Here is how to comply with California's reporting requirements. Step 1: Identify your taxable cryptocurrency transactions A taxable event occurs when you sell crypto for cash, trade one crypto for another, or use crypto to purchase goods or services. Simply buying and holding cryptocurrency is not a taxable event. Review all your transactions for the tax year to identify these events. Step 2: Gather your transaction records Collect detailed records for every taxable transaction. You will need the date you acquired the crypto, your purchase price (cost basis), the date you sold or traded it, and the fair market value in U.S. dollars at the time of the sale or trade. Step 3: Calculate your capital gain or loss For each transaction, subtract your cost basis (what you paid) from the sale proceeds (what you received). If the result is positive, it is a capital gain. If it is negative, it is a capital loss. This calculation is first performed for your federal return. Step 4: Complete the required tax forms Report your capital gains and losses on federal Form 8949 and federal Schedule D. The total capital gain or loss from your federal return then carries over to your California income tax return (Form 540) and is detailed on the California Schedule D. Step 5: File and pay your taxes by the deadline File your California state tax return with the Franchise Tax Board (FTB) by the annual April 15th deadline. You can file electronically through the FTB website or by mail. Important details and nuances: Per FTB Notice 2023-01, California follows the IRS's treatment of virtual currency as property. Income from activities like crypto mining or staking is generally taxed as ordinary income at your regular tax rate, not as a capital gain. Warnings and limitations: The FTB is actively working to identify taxpayers with cryptocurrency reporting obligations. Failure to report transactions can result in back taxes, significant penalties, and interest. Record-keeping is critical, as you bear the burden of proving your cost basis. This is general information and does not constitute legal advice. For complex situations, such as high-volume trading or decentralized finance (DeFi) income, consult with a qualified California tax attorney or CPA.