It has been a decade since cryptocurrencies came into existence! However, tax authorities are still struggling to formulate a tax structure for crypto investors to go by. Indeed, the IRS seems confused whether to consider cryptocurrency a commodity or a security.
How Does the IRS View Cryptocurrencies
For tax purposes, cryptocurrency assets fall under “property” and not currency. Crypto investors who have already bought cryptocurrencies and still hold them have no reporting to do. However, the IRS rules note that crypto-to-crypto trading comes under taxable events.
Alexander Stern, Tax attorney and founder of Attorney IO, says,
“Bitcoin looks a lot more like a commodity. The latest ICO often looks a lot more like a security… Ultimately, one token could be regulated as both a security and a commodity.”
However, now that we are getting close to bidding adieu to 2018, crypto investors need to figure out ways to fulfill tax obligations. An interesting loophole has appeared wherein crypto investors can buy crypto assets, but still show them as business losses.
Availing the Pareto Network Subscription Services
Investment research platform, Pareto Network, has a subscription package for premium-level crypto investors. A scoring system for investors determines whether they qualify for the platform’s subscription services or not. To build their scores, crypto investors accumulate the native cryptocurrency PARETO on the network.
All the money you use in buying these tokens will qualify as a business loss. This is because it is like paying for the expense of the subscription service. You can deduct all the invested money as losses and still keep the tokens as assets.
Andrew Rossow, attorney and cryptocurrency contributor for Forbes says,
“I’m not a tax expert, but I’ve always said that we’re all in this together as we define systems related to blockchain technology. What we are witnessing here are use cases, some inadvertently, as indicated here, and watching how they fit within the legal, tax, and ethical boundaries of what we know to be well-founded today.”
Crypto Investors: Keeping Transaction Volumes Low Is Crucial
Apart from building losses in crypto businesses, there are other ways to smartly strategize things and reduce the tax burden. CPA Patrick Camuso advises crypto investors to keep their transaction volumes low.
Camuso says, “when you have a high volume of trades, it does create a compliance burden… Day traders and algorithmic traders usually have the most unpleasant time around tax season from my experiences so far.”
He notes that the price of a cryptocurrency going up and down might not be of much importance for tax purposes. However, when you trade one crypto token for another, that draws the attention of IRS.
“You need to track portfolios and for each trade you’re required to report it to the IRS. It’s a taxable event, it’s a reporting event,” he said.
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