Cash, Crypto, and the IRS: A Los Angeles CPA’s Guide to Staying Compliant

The way we earn money is changing. Whether you’re a freelancer in West Hollywood getting paid for a gig, a tradesperson in LA County handling cash jobs, a Shopify store owner exploring crypto payments, or a YouTuber growing your online brand — navigating non-traditional income streams is the new normal.

However, with this flexibility comes a critical responsibility: tax compliance. The IRS is investing heavily in technology and enforcement to track digital assets and unreported cash income. Thinking this income is “off the books” or untraceable is a costly mistake.

The good news? Staying compliant is entirely achievable with the right knowledge and habits. This guide will walk you through the essential steps to handle cash and cryptocurrency payments correctly, ensuring you have peace of mind and avoid any unwanted attention from the IRS.

The Golden Rule: All Income is Taxable Income

Before we dive into the specifics of cash and crypto, let’s establish the foundational principle:

Unless the law explicitly states otherwise, all income you receive is taxable.

It doesn’t matter if it’s a wire transfer, a check, a stack of cash from a client, or Ethereum sent to your digital wallet — the IRS considers it all income. The only difference is the reporting burden — with cash and crypto, that burden falls squarely on you.

Part 1: Handling Cash Payments the Right Way

Cash is still king for many local businesses — from tradesmen and beauty salons to equipment rental companies and dental practices — but it lacks a built-in paper trail. This makes meticulous record-keeping your single most important task.

1. Separate Your Finances

Do not deposit cash payments into your personal checking account. Open a dedicated business bank account — this is non-negotiable. It creates a clean, auditable record and immediately legitimizes your operations.

2. Record Every Single Transaction

For every cash payment you receive:

• Issue an Invoice or Receipt: Use a digital system like QuickBooks, FreshBooks, or even a simple numbered receipt book.
• Log the Payment: Record the date, the client’s name, the service provided, and the amount in a bookkeeping ledger or spreadsheet.
• Deposit Regularly: Deposit cash into your business bank account promptly. A bank statement showing a deposit of $1,500 is much easier to defend in an audit than a shoebox full of loose cash.

3. Understand Cash Reporting Thresholds (Form 8300)

If you receive more than $10,000 in cash from one buyer in a single transaction or a series of related transactions, you are legally required to file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business with the IRS. This rule applies to cash and cash equivalents like cashier’s checks and money orders.

Failure to file can result in significant penalties.

Part 2: Navigating the Complex World of Crypto Taxes

The IRS classifies cryptocurrency as property, not currency. This single distinction is the source of most crypto tax confusion — it means every transaction can create a taxable event.

1. Differentiate Between Income and Capital Gains

You must understand the two primary ways crypto is taxed:

• As Ordinary Income: When you’re paid in crypto for goods or services, you have received ordinary income. You must record the fair market value (FMV) of the crypto in U.S. dollars at the time you receive it. This amount is subject to income and self-employment taxes — just like cash.

Example: A filmmaker pays you 0.5 ETH for video editing services. On that day, 0.5 ETH is worth $1,500. You must report $1,500 of ordinary income. Your cost basis in that 0.5 ETH is now $1,500. This is why working with a CPA for Filmmakers or a CPA for Creators is so valuable.

• As Capital Gains/Losses: When you later sell, trade, or spend that crypto, you trigger a capital gains event. You calculate the gain or loss by comparing its value when you dispose of it to your cost basis (its value when you received it).

Example (cont.): Two months later, you sell that same 0.5 ETH for $2,000.

• Sale Price: $2,000
• Cost Basis: $1,500
• Capital Gain: $500 — you’ll owe capital gains tax on this $500 profit.

2. Track Everything Meticulously

For every crypto transaction, track:

• The date and time you acquired the crypto
• The fair market value (in USD) at acquisition
• The date and time you sold, traded, or spent it
• The fair market value (in USD) at disposal
• The purpose of the transaction (e.g., payment for services, investment trade)

3. Use Crypto Tax Software

Tracking this manually is nearly impossible. Use reputable crypto tax platforms like CoinLedger, Koinly, or TokenTax. These services connect to your exchanges and wallets to automatically calculate your income and capital gains and generate the necessary tax forms.

4. Answer “The Question” Truthfully

On the front page of Form 1040, the IRS asks: “At any time during [the tax year], did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”

If you deal with crypto, the answer is yes. Checking “no” untruthfully is a serious red flag.

Proactive Strategies to Protect Yourself

Staying compliant isn’t just about record-keeping — it’s about smart financial planning.

• Pay Quarterly Estimated Taxes:
  If you’re receiving significant cash or crypto income — whether you’re a YouTuber, TikToker, Amazon seller, or Shopify store owner — you don’t have an employer withholding taxes for you. You are required to pay estimated taxes to the IRS and the California Franchise Tax Board (FTB) four times a year. This prevents a massive, unexpected tax bill and protects you from underpayment penalties.
• Choose the Right Business Structure:
  Operating as a sole proprietor is simple, but as your income grows, forming an LLC or an S Corporation can offer significant liability protection and potential tax advantages — especially for saving on self-employment taxes. For example, many Shopify Store CPAs, CPA for Amazon Businesses, or CPA for Online Commerce clients benefit greatly from the right entity structure.
• Don’t Wait Until It’s a Problem:
  The worst time to organize your finances is after you’ve received an IRS notice. Take control now.

Your Partners in Clarity and Compliance

The rules for cash and cryptocurrency are complex and constantly evolving. Trying to manage them alone while also running your business — whether you’re a YouTuber, TikToker, Filmmaker, Amazon Business owner, Shopify seller, Dentist, Tradesman, or Salon Owner — is a recipe for stress and costly mistakes.

At Velin & Associates, Inc., we specialize in helping modern creators and businesses navigate these exact challenges. As a trusted CPA for YouTubers, CPA for TikTokers, CPA for Shopify Stores, CPA for Amazon Business, CPA for Dental Practices, and more, we ensure you stay compliant, maximize every legal deduction, and implement a proactive tax plan that protects your bottom line.

Don’t leave your financial future to chance — schedule a consultation with our expert team today.

📞 Call us at 323-902-1000 or email Dmitriy Velin directly at dmitriy@losangelescpa.org