On a daily basis, we receive advice from friends and social media on any number of subjects: how to find the best mechanic, how to book the cheapest vacation, how to be the best parent, etc. Sometimes our friends give great advice, but sometimes they don’t. Have your friends given you tax advice when it comes to your crypto activity? If so… be wary! This is complex stuff and making the wrong move could be costly.
Here’s some bad advice you might have heard:
- You don’t need to pay taxes on your crypto activity.
- The IRS can’t track crypto.
- You can deduct 100% of your crypto losses.
Let’s clear up a few things:
- Selling crypto for fiat currency (USD, EUR, etc.) is a taxable event.
- Selling one crypto for another crypto is a taxable event.
- Paying for goods or services with crypto is a taxable event.
- The IRS is investing in technology to crawl the blockchain and identify addresses. Besides that, if you initially bought crypto from a bank account, the IRS will be able to see that if you are audited. From there, it is on you to prove your activity.
- If you have other capital gains, you can use your crypto losses to offset them. If you don’t have other capital gains, you can deduct up to $3,000 of crypto losses and carry the remainder forward to future tax years.
So what isn’t taxable?
- HODLing your crypto.
- Buying crypto with fiat currency.
- Donating crypto to charity.
- Gifting crypto to friends or family (under $15k per person per year).
This past September the ProfitStance team met with the members of the IRS Cryptocurrency Compliance Campaign in DC. We discussed many of the issues above, as well as how tools like the ProfitStance platform can help investors comply with the complex and ambiguous rules enforced by the IRS.
We want to be the kind of friend that helps you navigate the complexities of crypto taxation. And unlike your other friends, we have the expertise and the relationships that you can count on.
As you get ready to file this year, hit us up with any questions or concerns on our Contact Page. We’ll answer your questions within 24 hours.