How to Navigate New IRS Crypto Regulations

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.

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.

🚨 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

Are you ready to meet the IRS safe harbor for crypto tax basis reporting on January 1, 2025? As part of the digital asset "broker" reporting rules that were finalized earlier this year in the U.S., the IRS discovered that many taxpayers were using a universal wallet concept for assigning tax basis to crypto they sold. This means the taxpayer might sell BTC with a short-term holding period and tax basis of $30k from wallet #5, but instead, for tax purposes only, identify as sold BTC in wallet #3, with a long-term holding period and a tax basis of $65k. This type of identification within a single wallet is appropriate but crossing wallets (i.e., using an omni-wallet or universal wallet concept), is not compatible with the new 1099-DA reporting rules. For those that were using the universal wallet approach their remaining tax bases do not align with the new IRS rules going into effect Jan. 1, 2025. How to fix?? The IRS gave taxpayers a gift!! Revenue Procedure 2024-28, provides the gift of a safe-harbor that allows taxpayers to rectify the issue with no tax or penalties. Here's the catch: (i) taxpayer needs to have perfect records of remaining tax lots with purchase date and tax basis along with records of tax lots relieved in the past; and (ii) taxpayer needs to identify tax lots by wallet going forward. Sounds easy enough. But there are serious issues. Large funds that hold digital assets use third-party custodians and they cannot see wallet-by-wallet holdings in all of them. Some custodians show holdings as a Vault with accounts and sub-accounts. Others use sub-accounts broken out by type (e.g., DeFi, Funding, Investments). These systems are not specifying holdings at the wallet level. Moreover, most funds sell only out of their trading wallet which is otherwise empty. They move assets from custody or staking wallets into the trading wallet to make the sale. Thus, any identification would have to occur from the pre-movement wallet. While I would love to see this issue fixed prior to January 1, I'm not sure all custodians and taxpayers will get there. The upside is that the IRS is trying to make the best of a bad situation and keep the broker 1099-DA reporting on schedule. Absent signs of abuse, I don't expect the IRS to audit pre-2025 tax basis too harshly (JMHO). However, going forward taxpayers, custodians and administrators will need to get this right. The KPMG digital asset group is hard at work guiding the industry to an expedited solution. If you work with digital assets, you should be working with KPMG. https://lnkd.in/exwVaBNu

⚠ Is everyone up to speed on the most recent IRS rule affecting #crypto #tax filers? ⚠ ⁉What⁉ This ➡ Revenue Procedure 2024-28 Here's a quick breakdown... 👉 Purpose: This revenue procedure establishes a safe harbor for taxpayers to allocate the unused basis of digital assets to digital assets held within each wallet or account as of January 1, 2025. 👉 Background: Over the years, the IRS has provided guidance on the tax treatment of virtual currencies, including FAQs that explain the principles applicable to these assets. The Infrastructure Investment and Jobs Act expanded the definition of specified securities to include digital assets, effective January 1, 2023. Proposed regulations were issued to clarify the basis determination rules for digital assets, which .... 😥 must be applied on an account-by-account basis. 😥 👉 Definitions: Key terms are defined for the purposes of this revenue procedure, including "digital asset," "basis," "original basis," "acquisition date," "pre-2025 transaction," "unhosted wallet," "remaining digital asset units," and "units of unused basis." 👉 Scope: The safe harbor is available only to taxpayers who hold remaining digital asset units and units of unused basis as of January 1, 2025. It does not apply to digital assets acquired or transferred after this date. 👉 Snapshot and Safe Harbor Scope: Taxpayers may make reasonable allocations of units of unused basis to a wallet or account holding the same number of remaining digital asset units. Allocations must be documented and completed by specified deadlines. ✴ We are already preparing clients for this, but there are a few key steps when moving from universal basis tracking to a wallet-by-wallet approach. Specifically, prior year cleanup reconciliation is almost always needed to ensure proper reporting.✴ 👉 Examples: Several examples illustrate how the safe harbor can be applied, showing the steps and requirements for making allocations and identifying units sold or transferred. 👉 Effective Date: This revenue procedure is effective June 28, 2024. And will be required for 2025's tax filing. 👉 More questions? Let The Network Firm help you get all your ducks in a row with our White Glove Crypto Concierge services. Learn more here: https://lnkd.in/g-dh_NmW