The Crypto Sector
According to Deloitte partner Jim Calvin, one of the best Crypto Tax Tricks is to sell the most expensive first to maximize losses and minimize gains. In a recent discussion with CNN, he spoke of the strategies and issues regarding his clients and cryptocurrency including submitting yearly tax returns. In 2014, he was based in Asia and first became involved with crypto. He conducted Bitcoin interviews with clients as the financial institutions questioned FACTA. This is basically an IRS report regarding bank accounts. If the institution was holding the crypto, reporting it was not required. A report was necessary when it was held by a custodian or an exchange.
Jim Calvin does a lot of work related to exchanges, trading, dealers and investing as opposed to mining, centralized coin launches or ICO work. The majority of his clients have an interest in Bitcoin cash and Bitcoin. There are issues regarding tax straddles and wash trading. He currently spends more than fifty percent of his time on crypto. Despite the crypto news, many of the tax attorneys do not understand the technology. He knows any tax advice is worthless if the attorney does not understand the technology. According to IRS policy, property only needs to be claimed if taxable.
Jim Calvin finds the most difficult aspect of crypto are the transfers between exchanges. He was informed about Node40’s technology from a reporter. This automates the process, locates the cost-basis and generates a report accurate for taxes. The product is meant for serious traders and is not perfect. The best choice is still an accounting firm such as Deloitte.
Crypto Tax Tricks
Jim Calvin has found the best strategy for tax accounting with crypto is using the greatest possible cost. Everything he sells uses the coin with the highest cost. He sells the most expensive first to maximize losses and minimize gains. The IRS will not always accept this, but this rule is applicable for stocks, bonds and other assets. He stated the cost paid for coins must always be tracked. Anyone who can verify what is sold like a CPA can state it came from the lot with the greatest cost. A coin can be purchased for $4,000, but sold based on coins purchased for $20,000.
Losses in stock trading cannot be claimed when the stock is purchased again right after being sold. According to crypto news, losses for crypto assets can be claimed even if the asset is purchased again. An hour between the trades is usually sufficient. This is a way to file losses and keep holdings. The losses can be used against the gains, but not carried back. Another trick is to claim chainsplits and air drops when they appreciate to offset standard income tax. Air drops and chainsplits are not taxable unless they have been claimed and provided an income.
Jim Calvin is current with Bitcoin interviews. This has led him to believe 99 percent of air drops and chainsplits are junk. He believes once chainsplits and air drops appreciate, they should be claimed to offset income tax. Only the profits are taxed as capital gains. If Bitcoin cash is claimed at $150 and sold at $2,000, capital gains are paid for $1,850 and income tax for $150. This provides a better result than selling chainsplits or air drops at a loss. If cryptocurrency funds are stolen there is a chance they are not deductible.
If Bitcoin is not a personal asset, it is deductible when stolen provided there is proof of the theft. This relates to the rulings concerning the Madoff Ponzi scam. The situation is similar because if something is stolen, the individual should be able to handle the loss.