A confession: I’ve never filed my own taxes.
Now 28 years old, I—a financial journalist—have gone more than a decade of never having done state or federal taxes. Don’t worry, the paperwork does wind up in the right hands. I’ve just never filed it myself. My wife, who is more responsible with money than myself, handles most financial work in our house—including our taxes. To me, tax forms are like what I imagine a dog thinks when they tilt their head while watching humans dance. What is happening here?
I’m not alone. A 2017 poll by Ipsos for NPR found that 85% of Americans think the tax code is too complicated. Undoubtedly, many Americans who piled into the crypto markets over the past year agree.
Too bad they only have a few days left to figure it out—as the U.S. Tax filing deadline is April 18, a.k.a. Monday.
A worrying number of crypto investors—96%, to be exact—had not yet filed their forms with Uncle Sam, as of the end of March, according to a survey of U.S. Crypto investors by Wakefield Research for CoinTracker. And many don’t even realize that crypto is taxable to begin with, according to a 2021 survey from CryptoTrader.Tax, which is being renamed CoinLedger.
“Even though crypto adoption has grown in the U.S., crypto tax literacy needs to be improved,” Shehan Chandrasekera, head of strategy for tax at CoinTracker, tells me. “One thing we are seeing is [that] especially newcomers in this space don’t even know where to start.”
So, for those of you who are planning to sit down this weekend with your laptops, crypto wallet information, and W2s, here’s some tips for how to avoid the IRS knocking on your door in a few months:
- Check that box. For the last few years, the IRS has made telling the federal government about your crypto investments straightforward. On the top of a Form 1040, right below all that baseball card-like information, there’s a line asking “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” If you did, you should check it. You’ll also notice the IRS doesn’t say “purchase.” That’s because unless you realized some sort of gain on your investment—by selling it, staking it, or what have you—you’re in the clear. (Assuming you bought the token in USD. If not, more below.)
- Know the differences about taxes on crypto. In general, the IRS sees crypto similarly to investments like stocks—meaning it wants you to report any gains and losses from crypto investing. (Here’s CoinDesk on the specifics.) But there are some key differences between something like accounting for a stock sale on your taxes versus a crypto sale. Among them? Unlike the stock market, where you cannot trade a share of Tesla for one of Apple, you can trade a SOL token for ETH. And that is, in the eyes of the IRS, taxable.
- Brace yourself. For stocks, taxes can be relatively straightforward in that the brokerage you use provides a Form 1099-B, which details all of your transactions over the prior year, and, importantly, the gains or losses you must report. Crypto exchanges, for now, are not required to do so—making things tricky for investors, who need the details of their crypto investing endeavors to properly account for them. (There is software that can automate this process, and, if you haven’t filed yet, it may be worth using at this late stage.)
- Definitely don’t lie. The repercussions can be painful, ranging from an audit to, yes, even criminal charges, according to H&R Block.
Oh, and good luck. If I were you, I know I’d need it.
Notorious Q.I.G. On the hunt for a house? That is a real, physical one and not a digital one near Snoop Dogg’s metaverse pad? Then check out Coins2Day‘s latest Quarterly Investment Guide, which features articles looking to answer your real-estate questions, which there are surely more than ever considering that 30-year, fixed-rate mortgages are now at 5%.
Declan Harty
@declanharty
[email protected]
DECENTRALIZED NEWS
Credits 🚀
The world's largest investor, BlackRock, is studying the cryptocurrency sector... Circle, the crypto startup that issues USD Coin, has raised $400 million from investors like Fidelity, BlackRock, and Marshall Wace... Ava Labs, the developer behind the Avalanche blockchain, is in talks to raise $350 million at a $5.25 billion valuation, per Bloomberg... Robinhood has finally added new tokens onto its platform, including Solana, Compound, Polygon, and, yes, Shiba Inu coin... Crypto compliance company Astra Protocol has added former White House Chief of Staff Mick Mulvaney as a strategic adviser... Vitalik Buterin has donated $5 million worth of Ether to Ukrainian relief efforts... The Dallas Cowboys have brought on Blockchain.com as its newest sponsor.
Debits 🐻
An NFT of Twitter founder Jack Dorsey's first tweet flopped after the original buyer sought to re-sell it... Speaking of Twitter, Elon Musk wants to buy it... Justin Sun, founder of the Tron blockchain, does too... It's been a rough week in crypto markets, as of Thursday at noon. Bitcoin is down more than 7% over the last week, Ether has dropped more than 5%, and the trio of Solana, Cardano, and Terra have all collapsed by double-digits, with Terra dropping more than 20%...Meta plans to take a nearly 50% cut on sales of digital assets through Horizon Worlds... Amazon CEO Andy Jassy told CNBC the retail giant is "not probably close" on adding crypto payments... Bitcoin maxi Peter Thiel called Warren Buffett a "sociopathic grandpa from Omaha."
FOMO NO MO
What's Jack Dorsey up to? Putting news that Elon Musk is trying to buy Twitter to the side, Bloomberg Businessweek's Kurt Wagner has written this week about how Twitter founder Jack Dorsey became a "spiritual leader" for Bitcoin. Dorsey, who is still CEO at payments company Block, first came across the world's original cryptocurrency soon after Satoshi Nakamoto published his white paper about it, according to the report. But the former chief executive at Twitter has stood apart from his contemporaries in Silicon Valley in that Dorsey has not diverged from his Bitcoin evangelism, even while others have turned their attention toward the burgeoning Web3 world.
From the article:
Dorsey had lots to say about Bitcoin—in fact, a lot more than he had to say about either Twitter or Square, his payments company. He predicted Bitcoin would replace banks, bring economic opportunity to entrepreneurs in the developing world, and incentivize investments in renewable energy. “Bitcoin changes absolutely everything,” Dorsey stated matter-of-factly. “I don’t think there’s anything more important in my lifetime to work on.”
Five months later, Dorsey resigned from Twitter Inc. And announced that he was renaming Square. Henceforth the company, which helps local coffee shops and other small businesses process payments, would be called Block Inc., which brings to mind the main technology underlying cryptocurrencies: blockchain. Officially, Block is Dorsey’s full-time job, but almost everybody in his orbit knows he has a pretty serious side hustle. While he was running both Twitter and Square, his employees often joked that Twitter was his “favorite child.” Now it appears—based on conversations with more than 30 current and former employees who’ve worked for him—the favorite child isn’t so much Block; it’s Bitcoin.
BUBBLE-O-METER
$0.00025 per transaction
Solana wants to be the "useful" blockchain, my colleague Anne Sraders and I reported on Tuesday about the speedy network and its creators at Solana Labs. With its blockchain still facing sporadic outages at times, the "useful" goal is more of an aspiration today than a reality. But there's promise. Solana offers a far-less expensive network than the likes of Ethereum, where transactions costs average around $12 each. And Anatoly Yakovenko is undeterred in his vision to enable "as many people in the world with cryptography to do whatever they want to do," the Solana Labs CEO told Anne from Miami last week.
THE LEDGER’S LATEST
Paradigm, Andreessen Horowitz, and Union Square Ventures sued over alleged 'rampant fraud' on Uniswap exchange by Jessica Mathews
Inflation jumps 8.5% to a 40-year high—and a Johns Hopkins economists says the Fed is wrong about the causes by Shawn Tully
Ethereum just ran a major 'merge' test, bringing it one step closer to a game-changing update by Taylor Locke
Exclusive: 1stDibs CFO joins $4B NFT fantasy sports startup Sorare by Sheryl Estrada
Top investment banks are calling peak inflation after a red-hot report. Here's why they think consumer prices are set to cool by Will Daniel
New crypto-backed Super PACs launch as midterms loom by Chris Morris
'Shark Tank' investor Kevin O'Leary hated Bitcoin for years. Now he thinks it's going to 'save the world' by Taylor Locke
(Some of these stories require a subscription to access. Thank you for supporting our journalism.)
MEMES AND MUMBLES
It won't be June. Few things are certain in life. For Ben Franklin, it was death and taxes. For crypto investors, it's increasingly becoming delays to the Ethereum merge, which, when complete, will transition the network from a proof-of-work consensus mechanism to a proof-of-stake one. (See Taylor Locke's explainer about it in the above links.) The Ethereum community had been expecting the merge to finally hit in June, but core developer Tim Beiko tweeted Tuesday that won't be the case. Instead, Beiko expects it to happen "likely in the few months after."
