How to Comply With IRS Crypto Tax Enforcement

In addition to the final broker reporting regs released on June 28, the IRS also released several Notices and a Revenue Procedure. Revenue Procedure 2024-28 may be of particular interest. Why? - If you have previously taken an approach to determining the cost basis of your crypto sales by looking at all of your crypto sources and "mashing them together" as if they were held in one account (universal approach), that approach could be fine through 12/31/2024. - However, the IRS disagrees with this approach, so they are providing guidance on how to transition to a wallet-by-wallet approach beginning on 1/1/2025. - Revenue Procedure 2024-28 provides a safe harbor and two different methods for allocating the remaining cost basis at 1/1/2025 to each specific wallet or account to conform with the wallet-by-wallet approach. - Adhering to the safe harbor generally protects taxpayers from being assessed additional tax, penalty and interest. - In order to comply, amongst other tedious details, you must be able to identify and maintain records sufficient to show the total number of remaining digital asset units in each of the wallets or accounts at 1/1/2025, the number of units of unused basis, the original cost basis of each such unit of unused basis, and the acquisition date of the digital asset unit to which the unused basis was originally attached. ❗Here's the kicker: To meet the safe harbor standards, you must make a specific unit allocation (i.e., specifically identify which cost basis goes to which wallet or account) NO LATER THAN the first transaction completed on or after 1/1/2025 OR make a global allocation by describing the allocation method in the taxpayer’s books and records before 1/1/2025. - In other words, you have about 5.5 months to work through this reconciliation process. - If you are a taxpayer that has used a universal approach in the past, you may want to investigate *now* how to transition to the wallet-by-wallet approach. - If you have used a crypto tax aggregator in the past, now is the time to ask them how they plan to account for this change.

Heads up, crypto holders with multiple wallets! ICYMI - the IRS quietly dropped Rev. Proc. 2024-28 this year, which lets you transition from that old “universal” crypto basis approach (i.e. pretending all your tokens are in one consolidated wallet) to a more precise, wallet-by-wallet method. The big date to watch? January 1, 2025. So what’s the deal? Previously, you could act as if all your crypto was in one mega-account for tax purposes. With the new rules, you need to track basis for each wallet separately. If you’ve been using the universal method, you might have some “unused basis” units floating around. Thanks to Rev. Proc. 2024-28, you can now allocate those leftover basis units to the right wallet. But it’s a one-time, irrevocable deal, so plan wisely! Pro Tips to Document This Before Year End: 🔑 Consolidate Wallets: Move all your digital assets into one account by Dec. 31, 2024. Fewer accounts = simpler allocation. Just remember: putting all your eggs in one basket (wallet) can increase risk. Choose a wallet with top-notch security if you go this route. 🤖 Use Crypto Tax Software: The right software can help you quickly switch to wallet-by-wallet accounting. Careful: not all crypto accounting software was created equally. Make sure it won’t double-count basis and that it can handle the new rules. 🔥 Sell It All: Selling everything before Jan. 1, 2025, leaves no lingering basis allocation issues. But watch those gains and losses, and consider the wash-sales rules which - depending on who you ask - may or may not apply if you repurchase all your same positions. 🧮 Stay Put & Allocate: If you don’t want to move or sell, roll up your sleeves and make the required allocations under the safe harbor. Just be meticulous with your records. Looking Ahead We’re waiting (hoping?) for more clarity from the IRS on documentation and how this interplays with the finalized broker reporting Regs. In the meantime, don’t get caught off-guard. Disclaimer: This is not financial or investment advice. Check with your tax advisor about the pros and cons of each item listed above and choose the path that’s best for your situation.

🚨 Digital Assets & Taxes: What You Need to Know for 2024 and Beyond 🚨 With the digital asset industry crossing the trillion-dollar mark, the IRS and Congress have stepped up with new reporting rules aimed at closing the $50 billion gap caused by unreported transactions. Here's what every taxpayer and broker should know: 💡 Digital Assets Defined: From cryptocurrencies and stablecoins to NFTs, any digital representation of value recorded on a cryptographically secured ledger is treated as property for tax purposes. 📋 Key Reporting Updates: 1. For Taxpayers: ➡️ Report all digital asset transactions on your tax return (e.g., Form 8949 for capital gains or Schedule C for business income). ➡️ Answer “Yes” or “No” to digital asset activity on your Form 1040, even if you weren’t involved in any transactions. 2. For Brokers: ➡️ Starting 2025: Report gross proceeds from sales using Form 1099-DA. ➡️ Starting 2026: Report cost basis and gain/loss for digital assets held by customers. ➡️ Real estate transactions paid with digital assets: Brokers are required to report these under the new rules. ➡️ Stablecoins and NFTs: Simplified reporting applies for transactions under $10,000 (stablecoins) or $600 (NFTs) annually, using aggregate methods. 🌐 Global Coordination: The U.S. IRS is aligning with the OECD’s Crypto-Asset Reporting Framework (CARF) to exchange tax information across borders, ensuring compliance for U.S. taxpayers transacting with non-U.S. brokers. 🚀 Why This Matters: These changes aim to reduce the tax gap and bring more transparency to an industry often associated with anonymity. Whether you're an investor, miner, or broker, staying compliant is more critical than ever. Got questions about how this impacts you? Let’s discuss! 💬 #CryptoTaxes #DigitalAssets #IRSCompliance #TaxPlanning #InvestorFriendlyCPA