The price of bitcoin has been on a rollercoaster ride, hovering around $70,000 and experiencing fluctuations. Despite the recent dip below $67,000, the price is still up more than 50% year-to-date. Factors such as comments from Former President Donald Trump and Federal Reserve meetings have played a role in shaping the volatility of the cryptocurrency market.
Investors are keeping a close eye on potential policy shifts, particularly from Vice President Kamala Harris, who recently entered the presidential race. There is speculation that Harris may pivot from the current crypto scrutiny led by SEC Chair Gary Gensler and Senator Elizabeth Warren, which could have significant implications for the industry.
One of the key considerations for crypto investors is the tax implications of trading digital assets. When trading one coin for another or selling it at a profit, investors may be subject to capital gains or regular income taxes, depending on the duration of asset ownership. Long-term capital gains can range from 0% to 20%, with the potential for an additional 3.8% levy for higher earners.
Establishing basis is crucial for accurate tax reporting, as it determines the difference between the original purchase price and the asset’s value at the time of sale. Failure to establish basis could result in incorrect reporting to the IRS, leading to potential tax liabilities. This can be particularly challenging for investors with multiple exchanges and numerous transactions.
The U.S. Department of the Treasury and IRS have issued final guidance for digital asset brokers, requiring mandatory yearly reporting starting in 2026. Brokers will be expected to report gross proceeds from sales in 2025 via Form 1099-DA, with additional reporting requirements in subsequent years. Crypto investors have until January 1, 2025, to establish a “reasonable allocation” for their assets.
Navigating the tax landscape as a crypto investor requires careful consideration and adherence to IRS regulations. From understanding the implications of trading digital assets to ensuring accurate reporting for tax purposes, investors must stay informed and proactive in managing their tax obligations in the ever-changing world of cryptocurrencies.