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More from @TheCryptoCPA

Shehan

@TheCryptoCPA

Dec 15

Heads up, crypto investors! The IRS is making BIG changes starting Jan 1, 2025, and if you don’t prep now, you could pay more in taxes or face penalties.

Here’s what you need to do before the year-end to avoid penalties, save money, and stay ahead of the game. 🧵

1/ Learn Crypto tax 101.
What’s taxable?
✅ Selling crypto for fiat
✅ Trading one coin for another
✅ Spending crypto on goods/services
✅ Earning crypto (staking, mining, rewards, etc.)
✅ Airdrops & hard forks

If you had any of these transactions, you will likely have to file Form 8949/Schedule D and/or Schedule 1 when you file your taxes.

What’s NOT taxable?
🚫 Transfers between your wallets & exchange accounts
🚫 Sending/receiving crypto gifts
🚫 Crypto cash-back rewards

You still need to track these even though you don't have to report these to the IRS.

Read 10 tweets

Shehan

@TheCryptoCPA

Dec 5

Everything you need to know about Tax-loss harvesting and how much you can deduct on your taxes 👇

(Markets are at or near ATH but everyone has some coins/NFTs that are underwater which you can sell in December to mask future gains)

1/ What is Tax-loss harvesting (TLH)?

Selling your coins, NFTs, or stocks when their market prices fall below how much you paid for them (Cost basis)

2/ When to tax loss harvest?

You can TLH throughout the year. But, most people TLH just before the end of the year to reduce their current year taxes and/or offset future gains.

Read 15 tweets

Shehan

@TheCryptoCPA

Apr 19

I don't think crypto will be pseudo-anonymous or privacy-preserving anymore, at least in the US.

Yesterday, the IRS issued the long-awaited draft Form 1099-DA, the first tax form specifically designed to collect your ID and detailed transaction data at scale from "brokers".

Brokers (CeFi exchanges, certain DeFi exchanges, and wallets) will be required to generate this form for each sale transaction and submit that info to the IRS and you (similar to stock brokers) starting 1/1/2025.

The Form captures unsurprising data points such as date acquired, date sold, proceeds, and cost basis of crypto assets sold.

This information is needed and helpful for the taxpayer to complete their crypto tax filings.

However, the collection and reporting of the following additional data points (especially wallet addresses) to the IRS at scale could lead to major privacy and security concerns.

Sales-related data points
Box 11a: Sale transaction ID (TxID)
Box 11b: Digital asset address from which the units were sold
Box 11c: Number of units sold

Transfer-related data points
Box 12a: Transfer-in TxID number
Box 12b: Transfer-in digital asset address
Box 12c: Number of units transferred in

Furthermore, in the new draft Form 1099-DA, the IRS has included “unhosted wallet provider” as a check box.

This further signals the IRS’s intention to include unhosted wallets under the broker definition despite the industry feedback.

What does this mean to you?
Going forward, you will likely have to provide KYC information before creating an unhosted wallet and/or when interacting with platforms via unhosted wallets.

This could drastically change how users interact with crypto platforms. The will change "DeFi" as we know it today.

Read 4 tweets

Shehan

@TheCryptoCPA

Feb 26

Hot topic: How are bankruptcy payouts taxed and reported on taxes? 👇

1/ Background
Celsius, Voyager, BlockFi, and FTX have filed for Chapter 11 bankruptcy (Reorganization).

A reorganization allows a company to stay in business and restructure its obligations to creditors.

Account holders (creditors) of these companies are now receiving a portion of the original crypto assets they had in these platforms and/or totally new assets (coins you never had and shares of companies) as a payout.

2/ Taxation
The tax code does not directly talk about the taxation of bankruptcy payouts. Therefore, we have to figure out taxation based on case law. In simple terms, case law means rules that come from past decisions made by the courts.

💡At a high level, taxation of these bankruptcy payouts depends on whether you have a gain or loss scenario computed based on the difference between the amount realized (value of the payout at the time of receipt) and the initial cost basis of your assets.

Loss scenario (common)
Amount realized < initial cost basis of your assets.

Gain scenario (rare)
Amount realized > initial cost basis of your assets.

Let's work on some examples.

3/ In-kind payouts: Payouts received in the same asset you had in the platform.

3.1/ Loss scenario (common)
- You had 1 BTC in the platform; cost basis = $15.
- 0.7 BTC received as a payout valued at $12 at the time you receive it.

Since the amount realized ($12) is less than your initial cost basis ($15), this is a loss scenario.

Therefore, the cost basis of 0.7 BTC received becomes $15 (carryover basis from 1 BTC). 0.7 BTC also gets the date acquired of the original 1 BTC (carryover holding period).

After you receive the payout, there are no tax forms for you to file. You just have to transfer the original cost basis and date acquired to the 0.7 BTC received.

Read 10 tweets

Shehan

@TheCryptoCPA

Feb 22

I just attended a crypto tax webinar hosted by the IRS.

Among many things they covered, I thought the following was one of the most overlooked points by taxpayers & tax practitioners - see situation 2 in the thread.

Getting this right is important for you to have an accurate return and stay out of future IRS trouble.

As you know, every taxpayer must answer the crypto question on Form 1040.

The crypto question is very broad and captures a lot.

Therefore, If you deal with crypto, it's very hard for you to say "No" to this question.

That said, there are 3 clear situations where you can safely check "No" for the question despite dealing with crypto.

Situation 1: You just hodled crypto during 2023; no other activity.

**Situation 2: You transferred crypto from one wallet/exchange account you own to another wallet/exchange account you own (Transfers).

Situation 3: You purchased crypto using USD.

Situation 2 is very important and comes with some nuances you should pay attention to.

Transfers are clearly not taxable. You can also check "No" for the question as discussed above.

🚨 However, sometimes you have to spend crypto (like ETH) to transfer funds from one exchange/account you own to another.

Spending crypto like ether to initiate gas is a taxable transaction. This means you have to check "Yes" for the question and file Form 8949 with gain/loss coming from the ETH spent on gas.

(The IRS does seem to care about these tiny gains/losses apparently)

Read 4 tweets

Shehan

@TheCryptoCPA

May 25, 2022

Some interesting stats on IRS audit rates (GAO-22-104960)👇

1/ Personal tax audit rates have declined from 0.9% to 0.25% from 2010 to 2019.

In other words, individual tax returns were audited over three times more often for the tax year 2010 than for the tax year 2019.

The IRS is attributing this trend to decreased funding which reduced staffing.

2/ Audit rates decreased the most for taxpayers with incomes over 200K since these returns were generally more complex and required staff review.

Read 5 tweets

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