I think that cryptocurrency is the tulip bubble of the 2020s and wouldn’t touch it with the proverbial 10 foot pole.
But in case any METARs have speculated in crypto, be aware of the tax ramifications. The Form 1040 has a little box that you have to check if you bought any cryptocurrency.
Cryptocurrency investors may need to act within the next few weeks to reduce their tax bill—and get ahead of an increasingly aggressive IRS
By Laura Saunders, The Wall Street Journal, Nov. 11, 2022
The Internal Revenue Service hasn’t lost interest in cryptocurrencies, and investors need to focus on key tax issues before year-end.
New rules and enforcement actions are coming to ferret out crypto transactions that often went unreported in the past. There’s a bit of good news as well: This year’s painful selloff brings an opportunity for crypto holders to harvest losses to offset future taxes. …
The 2021 Infrastructure Investment and Jobs Act included a provision requiring crypto brokers to report customers’ sale proceeds to the IRS on a 1099 form, if it’s held in a taxable account. The requirements are akin to what brokerage firms report for investors’ stock sales…
In August and September federal judges approved two new summonses requiring a crypto exchange and a bank to turn over customer information to the IRS to uncover tax cheating using cryptocurrency… [end quote]
All investors who have ever had capital losses (probably most of us) know that a capital loss can be used to offset future capital gains on winners. If an investor with capital losses has no capital gains to shelter, the losses can offset up to $3,000 of ordinary income such as wages per tax return, per year. These losses don’t expire. This rule applies to crypto as much as any other asset (stocks, bonds, real estate, etc.).
PBS NOVA has just released a program on the roots of crypto, emphasizing its origin in the fear of Big Brother by a small coterie of programmers.
Well, Big Brother (in the form of the IRS) is definitely watching now. They can and will impose penalties on crypto traders who don’t pay their taxes on gains. They can and will go back years once they get their act in gear.