Crypto tax planning should always be a priority
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As 2023 enters the homestretch, crypto investors face a whirlwind of activity that can be both exciting, exhausting, and financially significant. The FTX trial was a high-profile event, with testimony from virtually every top employee, Samuel Bankman-Fried himself, and several expert witnesses. Rehashing the spectacular collapse of FTX as well as the multiple allegations against Bankman-Fried has done nothing to reassure investors about the veracity of crypto regulation and legislation. With Bankman-Fried guilty On all charges, the only remaining speculation is limited to sentencing, which is expected to take place in March 2024.
At the same time, the broader cryptoasset landscape has continued to advance, with HSBCHBA being the latest major TradFi bank to join the world of tokenization. Specifically, the bank recently announced an initiative that will allow customers and investors to tokenize their physical holdings to facilitate trading. Additionally, even though the AI buzz seems to have died down since ChatGPT debuted in late 2022, recent announcements have reignited excitement about how blockchain, cryptoassets and AI companies could work together.
However, in the background of all this, the upcoming tax season looms and crypto investors once again find themselves the topic of conversation and debate. Let's take a look at some of the (many) things crypto investors should keep in mind as tax planning and preparation shifts into high gear.
Charitable donations
With the recent recovery in the price of bitcoin and other cryptoassets, as well as the fact that 46% of millennials and 21% of Gen Z owns cryptocurrencies, the reality is that crypto contributions are set to increase. As dozens of establishments By adding the ability for individuals to make cryptoasset contributions, tax planning for this process will only become more important in the future.
When it comes to cryptoassets, there is a unique aspect that taxpayers need to keep in mind before making their contribution and during the tax reporting process. Since cryptoassets are not universally considered easily valued property, taxpayers must consider another factor. For contributions worth more than $500, the taxpayer must complete and file Form 8283. If the taxpayer is seeking to donate more than $5,000 worth of crypto, the taxpayer will either need to submit to an assessment that meets the requirements of the IRS, or waive the charitable contribution.
Reporting requirements
Putting aside for the moment some of the impending tax reporting changes that are coming in the form of broker reports etc., even relatively simple crypto trading and investing can lead to a flurry of trading. tax form requirements. When a taxpayer disposes of crypto assets by trading, exchanging or dealing in these cryptoassets, these transactions and the associated profits/losses must be reported on Form 1040, Schedule D. Additionally, if there are any discrepancies that must be reconciled between Form 1099 -B (sent to investors from exchanges and trading venues) and Schedule D, this may require filing Form 8949.
This without mentioning the The IRS is actively seeking more information from taxpayers by asking about crypto activity on page 1 of the 1040, as well as the possibility of some NFTs being taxed at the highest tax rate to be collected in relation to capital gains or as ordinary income events. Additionally, the IRS has made its position very clear. In addition to the projected $28 billion in revenue that will be collected related to crypto taxes, the IRS continues to highlight steps being taken to ensure greater crypto compliance.
IRS focuses on crypto
The IRS, as is its mandate, seeks to ensure that all U.S. taxpayers are in full compliance with applicable tax laws, but there are certain areas in which the IRS prioritizes enforcement and collection actions. Cash-only businesses, hard-working individuals, and many other economic areas traditionally fall under the bigger than the normal IRS examination. It's no surprise that cryptoassets continue to be high on the minds of IRS agents and executives.
Specifically, the recently launched virtual currency compliance campaign is expected to continue and potentially increase enforcement actions after an initial review showed that 75% of U.S. taxpayers were not complying with crypto reporting. In addition to efforts to increase U.S. taxpayer compliance with respect to domestic activities, the IRS has also identified hundreds of possible FBAR non-filers with an average balance of $1.4 million.
Regardless of how crypto investors view the situation, the IRS is prepared to maintain and increase its crypto compliance efforts in the future.
Tax preparation and planning may not be considered the most exciting part of the crypto space, but it is essential that crypto investors continue to make it a priority.
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