Two Tax Changes Crypto Investors Need To Understand

The IRS began issuing guidance on virtual currencies as digital property back in 2014. For tax purposes, this generally means crypto income is treated as short or long-term capital gains rather than ordinary income. And for the last few years, cryptocurrency investors have had to declare right on the front of their tax return whether or not they had crypto by checking a box which asks:

“At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?

For serious cryptocurrency investors, this means you need to be filing accurate tax returns in regards to your crypto (and even NFT) transactions. Crypto tracking  software like CoinTracker helps you stay organized, but if you earn income through activities like mining or staking, tax reporting gets even more complex.

Furthermore, with with Biden’s recent Infrastructure Investment and Jobs Act (IIJA), there are new crypto tax rules on the horizon that have serious implications for investors.

We’re partnering with H&R Block to talk about what’s changing with crypto taxes, what you need to know as an investor, and how you can prepare today. H&R Block is one of the most robust tax software options, and if you’re stuck, they have a network of 12,000+ tax professionals that can help you prepare your tax return. Get started with H&R Block here >>

On November 15th, 2021, the Infrastructure Investment and Jobs Act became public law. This $1.2 trillion dollar bill primarily focuses on improving America’s infrastructure. This means investing in roads, high-speed internet, public transportation, airports, and overall power infrastructure.

This bill, in conjunction with the Build Back Better framework, is the current roadmap to create more jobs while improving the country’s infrastructure.

So, what does any of this have to do with cryptocurrency?

Well, even though it was originally called the Infrastructure Billl, H.R. 3684 contains rules that impacts cryptocurrency exchanges like Coinbase and Gemini. In turn, this impacts how crypto taxes work.

Here are the two main crypto tax changes that are coming.

In 2023, cryptocurrency exchanges are going to be treated like regular stock brokers. Specifically, cryptocurrency exchanges will have to issue 1099-B tax forms to investors.

This means cryptocurrency exchanges will start tracking transactions and reporting them to the IRS. This also means reporting your personal information and any gains or losses you have per transaction (if the company has your basis information).

Overall, this change isn’t the end of the world for cryptocurrency investors, since you need to report your capital gains and activity anyway when you file your taxes. However, many cryptocurrency advocates aren’t fans of this bill (likely because many haven’t been accurately reporting it).

For starters, it adds more crypto tax requirements and means accurate bookkeeping is even more vital. Plus, if you want to use decentralized exchanges (DEXs) like Bisq or hold your cryptocurrency offline in a hardware wallet, you’ll still need to accurately report your crypto activities.

When the Infrastructure Bill was introduced, there were also concerns that the U.S. Treasury Department would also go after crypto miners under the new legislation. This could make it more difficult for miners to earn income and also impact mining hardware companies that actually produce and sell miners.

The Treasury Department has said it won’t target miners or crypto hardware companies, but only time will tell how this bill plays out in reality.

Another crypto tax change the Infrastructure Bill is introducing is for crypto transactions of $10,000 or more.

Under the new legislation, businesses will have to report the identity of the sender to the IRS by filing a Form 8300. Currently, businesses have to file this form if they receive $10,000 or more in cash for a payment as part of anti-money laundering efforts by the IRS.

The term “digital assets” also leaves some room for how these rules will play out. For example, accepting NFTs as payment could potentially fall under this requirement, although it’s not entirely clear yet how NFT taxes will be impacted.

It’s also unclear how decentralized exchanges can comply with this requirement since reporting the identity of users strays from the mission to be decentralized (and it may be near impossible in many instances).

These new cryptocurrency regulations are going to take effect January 1st, 2023. This means your crypto tax filings in 2024 will be impacted by these changes but 2021 and 2022 aren’t affected.

But if you took part in the cryptocurrency bull market of 2021 (or if you were an even earlier investor), you might need to start taking action now – especially if you’re HODLing.

Cryptocurrency exchanges like Coinbase and Kraken will likely inform users of upcoming changes and how to prepare. However, it’s also important to take charge of your own bookkeeping so you’re ready for any new requirements.

Here are some steps you can take to ensure the upcoming crypto tax changes don’t catch you by surprise.

First, you need to make sure that you’re accurately reporting your crypto holdings, as well as any gains and losses today. H&R Block makes it easy to do. First, you’ll be asked the “question” we mentioned above – so answer it correctly:

Second, if you have any taxable transactions – such as you sold a cryptocurrency for a gain or loss, you need to report those transactions in the investing section.

H&R Block Premium is designed specifically to help you navigate taxes for investments and cryptocurrency transactions. You can enter your gains and losses easily and let H&R Block’s tax software do the rest.

If you regularly invest in cryptocurrency, investing in crypto tax software can help you save time and improve accuracy when filing your taxes.

Tracking tools like CoinTracker let you import transaction information from hundreds of exchanges and wallets. This helps you track cost basis values for your various holdings and any capital gains or losses. You can even use strategies like tax-loss harvesting to potentially offset some of your gains to save money when filing.

If you frequently trade or have multiple crypto income sources, consolidating this information with tax software is a smart move.

Plus, these tools can create the reports you’ll need to go enter the information into H&R Block!

Consulting a tax professional is another way to prepare for tax season, especially if you have a complicated return.

H&R Block has a network of roughly 12,000 tax professionals located across the United States. If you have questions or need professional assistance, H&R Block is there to help. Their teams can take your information and help you prepare your tax return. They can also help answer tax questions and more!

Check out H&R Block here >>

One final way investors should prepare for crypto tax changes is to keep an eye on the industry. Cryptocurrency is largely in its infancy, and new requirements can appear seemingly overnight.

Plus, existing legislation can change. For example, Texas Senator Ted Cruz has introduced an entirely new bill that aims to repeal how the use of “broker” is used under the new law.

Cruz and other cryptocurrency advocates fear that the IIJA will negatively impact companies tangentially involved in crypto, opening the door for IRS overreach while simultaneously hindering DeFi and blockchain innovation.

Other Senators are also fighting the IIJA in an effort to protect blockchain and crypto wallet companies from new reporting requirements.

The point is, this issue is far from settled. As an investor, take control of your cryptocurrency through accurate bookkeeping and by using your own wallet. Additionally, keep your ear to the ground since the world of crypto moves fast.

If following the news isn’t your cup of tea, you can trust that companies like H&R Block will stay up on the latest tax legislation to ensure you can file accurately!

The Infrastructure Bill raised alarm bells for many cryptocurrency investors, especially with how broad the term “broker” can be in the eyes of the IRS.

However, not much is changing in terms of your individual responsibilities. You still need to accurately track your crypto gains, declare your activities, and file taxes on time. This is why consistent and accurate record keeping is so vital.

When it comes time to file your tax return, H&R Block can help. File your taxes with H&R Block and right now you can get 20% off >>