Cryptocurrencies, Non-Fungible Tokens (NFT), Digital, or Virtual Assets (we will call these,
Crypto) have not only revolutionized the financial landscape but have also introduced new
challenges and considerations for taxpayers. Erin understands and knows the constant changing
landscape of how crypto is created, awarded, staked, exchanged, converted, sent, received,
mined, held, spent, used, and taxed. She is seeking advice on how to meet IRS rules in 2024.

This week’s tip discusses crypto, use, ownership, responsibilities, and obligations. There are
thousands of different cryptos in the world, so be sure to do your own research before becoming
involved in this type of activity or investment.

Crypto is treated as property for tax purposes in the United States.
This means transactions involving crypto are subject to capital gains tax. Whether you are buying,
selling, exchanging, converting, staking, mining, or using cryptocurrencies, each activity can
trigger different tax consequences.

The primary tax consideration for crypto users is the calculation and reporting of capital gains
and losses. Capital gains arise when you sell or exchange a crypto at a higher value or price than
its cost (what you paid for it), while capital losses occur when the selling price is lower than
what you paid for the crypto. It's essential to keep meticulous records of all transactions,
including dates, amounts, and corresponding values in fiat (government printed) currency. In the
US it’s dollars and in Japan it’s yen. Each country has a fiat currency that is accepted and used.

The duration for which you hold a cryptocurrency can impact the tax rate applied to your capital
gains. Short-term capital gains, resulting from the sale of assets held for one year or less, are
typically taxed at higher rates than long-term capital gains. Understanding and planning for the
holding period can be crucial in optimizing your tax position.

Exchanges (where you transact crypto activity) are where you can get detailed records of your
crypto transactions and there are hundreds of exchanges worldwide on which you can conduct
crypto transactions. The biggest one used in the US is Coinbase.

I would not use or consider an exchange that is not headquartered (HQ) in the US!

Using exchanges not HQ in the US is how so many people lost money in crypto through GH theft or fraud.

Tax authorities are increasingly focusing on crypto transactions, making accurate and transparent
reporting essential. The Internal Revenue Service (IRS) requires taxpayers to report crypto
transactions on their tax returns. Even if you only buy and hold crypto, you must report this on
your tax returns. Failure to comply with reporting obligations can lead to civil & criminal
penalties and legal consequences.

Mining crypto involves the verification of transactions on the blockchain. This means you are
solving complex puzzles online and miners are rewarded with newly created or minted crypto.
The fair market value of this crypto, at the time of receipt, is considered taxable income. Miners
must report this income and may also be eligible for certain deductions related to mining
expenses.

Staking crypto is another way of saying earning interest on crypto that is restricted to leaving it
on the exchange and earns “staking” rewards over time. This is like putting money into an
account that pays you over time. While you stake your crypto to earn rewards, you can NOT
remove, exchange, trade or send it anywhere until you unstake the crypto that is earning rewards.
And when you do that, you stop earning rewards for that crypto.

Given the dynamic nature of crypto markets, tax planning becomes crucial.

1. Strategies such as tax-loss harvesting, (this is selling losing crypto at year-end, then
buying it back in the next year – as of 2023, there are no wash sale rules on crypto, like
with securities)

2. Holding assets for the optimal duration to qualify for long-term capital gains rates,
(which is holding for longer than a year)

3. Exploring tax-efficient investment structures (like setting up LLC’s, Corporations,
Partnerships and Trusts) can help individuals and businesses manage their tax liabilities
more effectively.

Here are some points to remember:

 Crypto is property and taxed as Capital Gains usually.

 All Digital or Virtual Assets (Crypto) are now required to be reported on tax returns.

 Be sure to work with a tax professional who understands crypto tax requirements.

 Always do your own research before buying or investing in crypto.

 Be sure you know where any crypto exchange is HQ and licensed or incorporated.

 Consider all tax options and strategies to maximize your crypto gains and even losses.

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.

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