As the holidays and year-end gifts come to the forefront, here are a few things crypto investors should keep in mind.
Crypto tax planning and preparation is getting a lot of attention with the IRS Comment Period we’ve only just voted on the proposed regulatory changes, but that’s only part of the story. As the holiday season draws closer each day, there are sure to be dinner table conversations on all sorts of topics, and crypto is sure to be one of them. Over the past few years, reflecting the dramatic rise and fall of prices and market sentiment, crypto investors and advocates have been either celebrated or ridiculed on such occasions. This year is expected to be no different, with several crypto-related stories making headlines, including how recovering crypto prices could impact charitable contributions and other end-of-year tax planning strategies. ‘year.
Specifically, the last year has been tumultuous for the crypto space and those involved in it, whether as an investor, developer, or entrepreneur. On the one hand, the persistence of a drop in prices, aggravated by the recently concluded tragedy of the FTX trial, cast a negative veil over space. Regulatory crackdowns and public statements are sure to reignite questions about whether the entire space is a giant scam, and investigations into even highly reputable companies like PayPalPYPL do not help the optics of the sector. On the other hand, the rapid adoption of blockchain and tokenization tools by various TradFi banking establishments in the United States and abroad, coupled with the ever-increasing likelihood of an ETHETH and BTCBTC ETFs are positive developments by any definition.
Let’s take a look at the topics and trends crypto investors should be ready to discuss over the upcoming holidays.
Why the SEC is suing everyone
Saying the SEC has made a decision active role in enforcement actions over the past year would be a dramatic understatement. The seemingly rapid change in approach, from a hands-off approach for years to a seemingly repressive approach against all market participants, could be particularly confusing to some. Investors and crypto industry veterans are well-versed in the details of these stocks, but to outsiders it may seem like a mystery. Fortunately or not, depending on your point of view, the reasons behind this apparent turnaround can be summarized in a few statements.
The SEC and other U.S. regulators and policymakers were caught off guard (some would say embarrassed) by both the spectacular collapse of FTX and the perception that U.S. policy had been influenced by the company . While the timing of these enforcement actions may be seen as coincidental, the reality is that, spurred by calls from across the market, regulators have taken a much more proactive approach. Another reason the SEC appears to be involved in every enforcement action is that other regulatory bodies and agencies have taken a back seat in developing authoritative standards. The exception to this rule is the IRS, which has continued to expand and refine crypto tax guidelines.
In the meantime, however, it appears that the SEC will continue to be the primary regulator in this area, so negative headlines may continue to dominate the media.
How Price Clawback Affects Tax Planning Strategies
Crypto investors have reason to rejoice as 2023 enters the homestretch, prices have risen across the board. Bitcoin is specifically on the rise 60% in 2023ranking among the best performing assets of 2023. In addition to the obvious good news that these price increases are for investors, they also have implications for year-end tax planning and charitable giving.
Harvesting tax losses because crypto is a practice where, simply put, investors sell coins, tokens, or NFTs that have fallen below where they were purchased (cost basis) to recognize those losses. For crypto in particular, wash sale rules do not apply (yet), so if investors believe in the project for the long term, these same cryptoassets can be redeemed without further tax complications. These harvested losses can be used to offset other taxable income.
Crypto-related charitable contributions have continued to rise, and as cryptoassets have risen significantly from the lows of early 2023, this could cause an increase in the number of investors looking to donate/contribute cryptoassets. Investors who wish to do so should remember that contributing cryptocurrencies may result in additional filing and compliance requirements. 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.
The year ahead promises to be full of action
If investors and market watchers thought the past year (or several) was eventful, the conversation is likely to get even more intense in the year ahead. Between several pieces of stablecoin legislation that have been proposed in Congress, the IRS is further stepping up its efforts in connecting with cryptoassets, the world’s largest banks and asset managers are investing heavily in and deploying products based on blockchain, and companies like PayPal launching stablecoins the pipeline is definitely full.
Additionally, as conversations around tokenized assets have evolved to include more everyday uses and bad actors such as those at FTX are brought to justice, market confidence in these assets will only increase.
No matter what happens to a specific project, coin, or token, it seems clear that the trend toward blockchain and asset tokenization is here to stay.