In today’s edition, we prepare for tax season as Anthony Tuths from KPMG shares an overview of crypto tax preparation and essential guidelines to adhere to.
Subsequently, Layne Nadeau from NVAL addresses queries regarding taxes and NFTs in the ‘Ask an Expert’ segment.
Tax Season – Key Information on Cryptocurrency Taxes
The 2024 tax year is wrapping up, and tax filing season has started. If you’ve engaged in crypto trading, several considerations should be kept in mind. Primarily, don’t procrastinate.
While a significant U.S. centralized exchange may supply you with an IRS Form 1099, many others might not. Hence, you’ll need ample time to organize your tax records. Even when supplied a 1099 by an exchange, it is unlikely to include cost basis data. Additionally, most non-U.S. exchanges and DeFi platforms do not offer tax information.
To compute accurate profits and losses, it’s essential to maintain precise trading records for every transaction, including the cost basis of any tokens sold. If you failed to keep timely records throughout 2024, you’ll likely need to extract this information from your exchange.
Moving forward, starting from 2025, be aware that you must employ ’tax lot relief’ methods, meaning you’ll select which portions of fungible tokens were sold and their corresponding tax basis. This will apply on a wallet-by-wallet basis. Therefore, consolidating wallets may be prudent.
Besides efficient record-keeping and tracking tax basis, remember all forms of income and expenditures in crypto should be accounted for. For instance, if you received an airdrop of a token valuable at the moment of distribution, the ordinary income matches the fair market value at the time you could sell it.
Regardless of your actions, this income inclusion figure becomes your tax basis, and any future sale will yield a capital gain or loss based on this figure.
Looking toward the end of 2024, if you sold some of your digital assets at a loss (loss harvesting), these losses can offset your taxable gains, thus lowering your tax bill. Note there’s no wash sale rule for crypto, so if you bought back the same tokens shortly after selling them, you can still utilize those losses.
If you still find yourself with taxable gains after loss harvesting for 2024, consider contributing to your IRA before the April 15 deadline to obtain a deduction for that year. While direct contributions of cryptocurrency to an IRA are prohibited, with a self-directed IRA, one can deposit fiat to then purchase crypto.
Finally, if you’ve purchased a Bitcoin or Ethereum ETF, be informed that even if you didn’t sell the ETF in 2024, you might still face tax obligations since they operate as grantor trusts. They sell small crypto amounts monthly to manage fees, and each ETP offers an annual tax report to help you compute your gains and losses as a trust unitholder.
Good luck filing your taxes!!
Ask an Expert
Q: How are non-fungible tokens (NFTs) treated for tax purposes?
A: In many regions, NFTs are recognized as digital assets, subject to similar tax regulations applicable to cryptocurrencies.
Q: Can “Floor Price” be used to assess the value of non-fungible assets for tax purposes?
A: No, floor price is not acknowledged by formal accounting or tax standards; an acceptable service using recognized accounting practices is required to determine fair market value.
Q: Is a tax loss realizable for NFTs that have depreciated in value?
A: Yes. If selling the token is not viable, services exist to “purchase” illiquid NFTs, allowing the capital loss to be recorded.
Due to insufficient guidance from tax authorities on this subject, an alternative could be sending your NFT to a burn wallet, like the standard ETH burn address.
