‘Crypto has a target on its back with the IRS:’ Bitcoin CEO on Yahoo Finance Live
‘Crypto has a target on its back with the IRS, says Bitcoin CEO
Crypto investors may want to secure all relevant tax information this season: The IRS and Security and Exchange Commission (SEC) are paying extra attention to digital assets.
“Give crypto a target on its back,” Swan Bitcoin CEO Terrence Yang told Yahoo Finance LIVE (video above), “make sure you collect documentation on sales and in crypto investments that went to zero, as many of that they did last year when the bubble burst.”
Yang’s advice came as last year’s “crypto winter” wiped out investors, who lost a lot of value in their cryptocurrencies as the market plunged more than 60% since its November 2021 peaks, decimating over $2 trillion in market capitalization. And while most paid a hefty bill for large capital gains in 2021, many were surprised to learn that capital losses could be limited on their tax returns.
To help ease investors’ pain of crypto losses and limited tax benefits, Yang recommended hiring an accountant and giving them enough time to “think about tax deductions and credits.” In addition, Yang suggested investors make “lemonade out of lemon” by reaping Bitcon capital losses.
Harvest?
The crypto boss advised Bitcoin investors to harvest their losses for the future – this means taxpayers who generated unrealized losses in Bitcoin can sell their Bitcoins and then buy them back, a process that creates a capital loss on the return.
Although the IRS has rules and limitations on the use of capital losses, any remaining capital losses can be carried forward to other tax years.
“A lot of us saw… unrealized losses in our Bitcoin exposure because a lot of us bought during the bull market, during the 2021 hype,” Yang said. “You can sell immediately, buy back and lock in that tax benefit by realizing the capital loss.”
However, this benefit only applies to Bitcoin, not most other cryptocurrencies. Bitcoin is currently regulated as a commodity, while the majority of other cryptocurrencies are generally classified as securities under the SEC subject to the wash sale rule.
“In the past I would have said crypto [along with Bitcoin],” Yang said, “but given that the SEC and the IRS are taking a new and more aggressive look at and considering them as securities, you can’t actually buy back crypto immediately because you’ll be violating the SEC’s 30-day wash sale rule.”
Regardless of what digital asset owners do with their virtual coins, Yang reminded investors that for this tax season, “your goal should be to pay the right amount to avoid penalties, take advantage of tax benefits and reduce audit risk.”
Rebecca is a reporter for Yahoo Finance.
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