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However, these are traditional investment fees for brokerage accounts. Should this be the same for crypto assets where often GAS fees can be substantial? While the disposal may be taxable, the fee may remain nondeductible absent further guidance. See Publication , Taxable and Nontaxable Income, for more information on taxable income. The IRS has not formally commented on taxation of staking income, but the conservative approach is to tax staked coins as ordinary income based on the fair market value of the coins at the moment of receipt.

It is reasonable to tax staking income the same as mining income since they are the results of the two most popular consensus mechanisms — staking provides rewards to network validators in proof-of-stake while mining provides rewards to the miners, who serve to secure and validate the network in proof-of-work. I stake my Ethereum but cannot access rewards yet, is this taxable?

You will not find any tax authority with a concrete answer on this question. However, a strong case can be made that ETH 2. In other words, the moment you can trade or withdraw the coins, they should be taxable then. Is the Ethereum merge a taxable event?

While we do not have a firm answer on this, what we know is that 1 the merge was a change to the protocol that did not result in two new coins from the change. This would technically fall under the definition that the IRS used for soft forks in Question 30 of the FAQs and would therefore seem to be a nontaxable event where tax basis is simply carried over from the original ETH. Any forked coins such as ETH PoW that are not part of the main merge would be subject to hard fork taxation rules.

Do I owe crypto taxes on this? This means that if you are staking a coin and receiving rewards every three days, you will have about different points in time at which you will need to value your rewards. How are airdrops and hard forks taxed? They are both taxed the same as ordinary income based on the value of the coins at the time that the taxpayer obtains control of the coins. The IRS provided their analysis on this in Rev.

One thing to make clear is that an airdrop does not follow a hard fork — an airdrop is a marketing event in which coins are sent to users who meet certain criteria. A hard fork is a change to the protocol that results in a new coin being given to users who held the forked coin, for example, Bitcoin went through a hard fork in and created Bitcoin Cash. Regardless of the name, airdrops or hard forks result in taxpayers receiving new coins.

If you have any new coins in your wallet from seemingly thin air, this is taxable as ordinary income based on the fair market value of the coins upon control. I earn rewards or other yield on my crypto, how is this taxed? The IRS has not formally commented on taxation of many types of crypto income.

However, just like with airdrops and hard forks, the generally accepted principle is that any new coins earned are taxable as ordinary income based on the fair market value of the coins upon control. What are the tax implications of nodes such as Strong? There is no guidance on taxation of nodes such as those of Strong. However, there are various taxable events associated with nodes.

When you create a node, this is a taxable event as your STRONG will have a gain or loss based on its change in value since you purchased it. The creation of the node can be seen as an expense — the problem is that you have to have a trade or business in order to deduct business expenses. The ideal tax treatment would be to capitalize and amortize the node, as it is providing future value along with your monthly fees , but you also need a trade or business to do this. If your investment in such assets is substantial, it is recommended you find a tax professional to help you navigate the different approaches of reporting.

When you receive rewards, these are taxable as ordinary income based on the fair market value of the rewards when received. For example, a sporadic activity, not-for-profit activity, or a hobby does not qualify as a business. The best advice is that if you say you are in a business, you should actually be in the business — working regularly, in a for-profit activity and treating it like a business — this means an LLC, accounting records and such.

If you are paying a fee, not doing anything else and only collecting rewards, this is not likely to be seen by the courts as a business activity, but either a passive activity or an investment activity. If you have a mining operation set up and you are working to keep the hardware running, expanding, doing activities for the business constantly, and this is the main source of income on which you depend on to live, you certainly have a business activity.

Should playing Axie Infinity for a living and earning income be a business activity? Crypto Trading What counts as a taxable disposal of a crypto asset for U. The sale of a crypto for a stablecoin USDT, USDC, DAI The trade of a crypto for another crypto The trade of a stablecoin for another stablecoin The purchase of an NFT with crypto The purchase of any goods or services with crypto In every case, whenever you have a taxable disposal of a crypto asset, you must calculate and report your gain or loss.

Every time you trade one crypto asset for another, this is a taxable event. How is my gain or loss calculated for crypto taxes? Cost basis: Cost of crypto disposed of; cost in fiat or crypto or fair market value at time of acquisition if traded for another crypto asset. Trading one crypto for another is a taxable event that has to be reported on your tax return on Form The trade will have to be valued and reported in USD based at the time of your trade — Accointing.

I need to sell my crypto for fiat, do I have to pay taxes? Trading crypto for fiat is a taxable event that has to be reported on your tax return on Form By connecting your wallets and exchanges with Accointing. Always consider the economics first and taxes second, but always do consider the tax implications and set aside some funds for your tax bill.

I only traded a small amount, do I have to report this? Every trade of crypto to crypto or crypto to fiat is a taxable event. Any income event such as staking, mining, interest, airdrops or rewards are taxable events. There is no de minimis for reporting. What is the difference between futures and margin and how is this taxed? Easy to confuse as both allow you to use leverage to generate a greater return on your capital, there are basic differences between the two products, which should lead to different tax outcomes, but due to a lack of guidance and complexities with data, most should be treated as capital gains similar to other trades.

When an investor trades with margin on a crypto platform, they are borrowing funds to have greater amounts of capital for their positions. Margin trades are placed in the spot market. When an investor trades a futures contract, they are obtaining contracts to buy or sell an asset at a given price in the future. These contracts also let investors amplify their gains by using leverage in a similar manner as margin trading, where the broker would only require a fraction of the borrowed capital as collateral, the result being that while gains are amplified, liquidations can occur much faster if the market goes the wrong way.

Future trades are placed in the derivatives markets and generally have access to higher leverage than margin traders. From a tax perspective, unless a contract qualifies under Section , then the gain or loss must be reported as capital gain absent further guidance.

I am a crypto trader, can I use the mark to market election? The Internal Revenue Code section f gives trades in securities or commodities the option to elect to mark to market their assets and treat losses as ordinary losses. This election is not available to crypto traders or crypto investors as cryptocurrency is not considered a security or commodity.

Does the wash sale rule apply to crypto? The Internal Revenue Code section a disallows the deduction of losses that have been realized where within a period of 30 days before the sale and 30 days after the sale the taxpayer has acquired or entered into an option to acquire substantially the same units of stock or securities.

The keyword here is stock or securities. Cryptocurrency is neither of those and as such, the wash sale rule does not currently apply to crypto. This is expected to change in the very near future, so proceed with caution. While there is no official guidance for many common type of crypto losses such as rug pulls, there are a few ways to claim crypto losses from scams or thefts: The loss from a sold or traded crypto asset is reported on Form The loss from an abandoned business or investment asset is reported on Form , line A loss of theft of business or income producing property, is reported on Form Section B.

A loss on a Ponzi-type investment, using the safe-harbor under Rev. If a loss fits in one of the buckets above, you can deduct the loss which is generally based on the cost of your assets lost or stolen. If you have a coin with no liquidity, it is recommended to send the coins to a burn address in order to formally abandon the coins and deduct your tax loss.

Thefts of personal property generally fall under the Casualty Losses Framework which are currently limited to losses or theft caused by a federal declared disaster. But whether cryptocurrency is a personal asset or an investment asset is the key question here. If it is an investment asset, then these losses would then generally not be personal but rather investment or income-producing. If you are unsure of how to deduct a particular loss and it is large enough, you should consult a tax professional.

If I donate crypto to a charity, is this deductible? Yes, but it must adhere to the IRS requirements for a donation of property. If you have held the crypto for more than one year before gifting it to a charity, your donation is the fair market value of the donated crypto at the time of the donation and you would not recognize any gain or loss and donation.

Yes, you would get the tax benefit at the appreciated value while not having to recognize the loss — a great tax strategy if you are sitting on a lot of appreciated crypto and want to help the world. Please be aware of the requirements by the IRS on donations of property. In no event will the total amount of the penalties for nonwillful violations exceed 50 percent of the highest aggregate balance of all unreported foreign financial accounts for the years under examination.

The penalty applies to individuals as well as financial institutions and nonfinancial trades or businesses for all years. There may be both a reporting and a recordkeeping violation regarding each account. The date of a violation for failure to timely file an FBAR is the end of the day on June 30th of the year following the calendar year for which the accounts are being reported. This date is the last possible day for filing the FBAR so that the close of the day with no filed FBAR represents the first time that a violation occurred.

The balance in the account at the close of June 30th is the amount to use in calculating the filing violation. The date of a violation for failure to keep records is the date the examiner first requests records. The balance in the account at the close of the day that the records are first requested is the amount used in calculating the recordkeeping violation penalty. The date of the violation is tied to the date of the request, and not a later date, to assure the taxpayer is unable to manipulate the amount in the account after receiving a request for records.

The balance in the account at the close of the day on which the records are first requested is the amount to use in calculating the penalty for failing to keep records as required by statute. See discussion of mitigation, below. A finding of willfulness under the BSA must be supported by evidence of willfulness. The burden of establishing willfulness is on the Service. In the FBAR situation, the person only need know that a reporting requirement exists. If a person has that knowledge, the only intent needed to constitute a willful violation of the requirement is a conscious choice not to file the FBAR.

Example: Willful blindness may be present when a person admits knowledge of, and fails to answer questions concerning, his interest in or signature or other authority over financial accounts at foreign banks on Schedule B of his Federal income tax return. This section of the income tax return refers taxpayers to the instructions for Schedule B, which provides guidance on their responsibilities for reporting foreign bank accounts and discusses the duty to file the FBAR.

These resources indicate that the person could have learned of the filing and recordkeeping requirements quite easily. It is reasonable to assume that a person who has foreign bank accounts should read the information specified by the government in tax forms.

The failure to act on this information and learn of the further reporting requirement, as suggested on Schedule B, may provide evidence of willful blindness on the part of the person. Note: The failure to learn of the filing requirements coupled with other factors, such as the efforts taken to conceal the existence of the accounts and the amounts involved, may lead to a conclusion that the violation was due to willful blindness. The mere fact that a person checked the wrong box, or no box, on a Schedule B is not sufficient, in itself, to establish that the FBAR violation was attributable to willful blindness.

The following examples illustrate situations in which willfulness may be present: A person files the FBAR, but omits one of three foreign bank accounts. The person had previously closed the omitted account at the time of filing the FBAR. The person explains that the omission was due to unintentional oversight. During the examination, the person provides all information requested with respect to the omitted account.

The information provided does not disclose anything suspicious about the account, and the person reported all income associated with the account on his tax return. The penalty for a willful violation should not apply absent other evidence that may indicate willfulness. When asked, the person does not provide a reasonable explanation for failing to file the FBAR.

In addition, the person may have failed to report income associated with foreign bank accounts for the years that FBARs were not filed. A determination that the violation was willful would likely be appropriate in this case. A person received a warning letter informing him of the FBAR filing requirement, but the person continues to fail to file the FBAR in subsequent years. In addition, the person may have failed to report income associated with the foreign bank accounts. It is usually established by drawing a reasonable inference from the available facts.

The government may base a determination of willfulness on inference from conduct meant to conceal sources of income or other financial information. For FBAR purposes, this could include concealing signature authority, interests in various transactions, and interests in entities transferring cash to foreign banks. Documents that may be helpful in establishing willfulness include: Copies of statements for the foreign bank account.

Promotional material from a promoter or offshore bank. Statements for debit or credit cards from the offshore bank that, for example, reveal the account holder used funds from the offshore account to cover everyday living expenses in a manner that conceals the source of the funds. Copies of Information Document Requests with requested items that were not provided highlighted along with explanations as to why the requested information was not provided.

Copies of debit or credit card agreements and fee schedules with the foreign bank, which may show a significantly higher cost than typically associated with cards from domestic banks. The written explanation of why the FBAR was not filed, if such a statement is provided. Otherwise, note in the workpapers whether there was an opportunity to provide such a statement. Copies of any previous warning letters issued or certifications of prior FBAR penalty assessments. An explanation, in the workpapers, as to why the examiner believes the failure to file the FBAR was willful.

Documents available in an FBAR case worked under a Related Statute Determination under Title 26 that may be helpful in establishing willfulness include: Copies of documents from the administrative case file including the Revenue Agent Report for the income tax examination that show income related to funds in a foreign bank account was not reported. A copy of the signed income tax return with Schedule B attached, showing whether or not the box pertaining to foreign accounts is checked or unchecked.

Copies of tax returns or RTVUEs or BRTVUs for at least three years prior to the opening of the offshore account and for all years after the account was opened, to show if a significant drop in reportable income occurred after the account was opened. Copies of any prior Revenue Agent Reports that may show a history of noncompliance. Any documents that would support fraud see IRM 4. For cases involving willful violations over multiple years, examiners may recommend a penalty for each year for which the FBAR violation was willful.

After May 12, , in most cases, the total penalty amount for all years under examination will be limited to 50 percent of the highest aggregate balance of all unreported foreign financial accounts during the years under examination. In such cases, the penalty for each year will be determined by allocating the total penalty amount to all years for which the FBAR violations were willful based upon the ratio of the highest aggregate balance for each year to the total of the highest aggregate balances for all years combined, subject to the maximum penalty limitation in 31 USC a 5 C for each year.

Note: Examiners should still use the mitigation guidelines and their discretion in each case to determine whether a lesser penalty amount is appropriate Examiners may recommend a penalty that is higher or lower than 50 percent of the highest aggregate account balance of all unreported foreign financial accounts based on the facts and circumstances.

In no event will the total penalty amount exceed percent of the highest aggregate balance of all unreported foreign financial accounts during the years under examination. If an account is co-owned by more than one person, a penalty determination must be made separately for each co-owner. The penalty against each co-owner will be based on his her percentage of ownership of the highest balance in the account.

The actual amount of the penalty is left to the discretion of the examiner. IRS has adopted mitigation guidelines to promote consistency by IRS employees in exercising this discretion for similarly situated persons. Exhibit 4. For violations occurring after October 22, , the four threshold conditions are: The person has no history of criminal tax or BSA convictions for the preceding 10 years, as well as no history of past FBAR penalty assessments. No money passing through any of the foreign accounts associated with the person was from an illegal source or used to further a criminal purpose.

The person cooperated during the examination i. IRS did not sustain a civil fraud penalty against the person for an underpayment for the year in question due to the failure to report income related to any amount in a foreign account. FBAR Penalties — Examiner Discretion The examiner may determine that the facts and circumstances of a particular case do not justify asserting a penalty.

When a penalty is appropriate, IRS penalty mitigation guidelines aid the examiner in applying penalties in a uniform manner. The examiner may determine that a penalty under these guidelines is not appropriate or that a lesser penalty amount than the guidelines would otherwise provide is appropriate or that the penalty should be increased up to the statutory maximum.

Factors to consider when applying examiner discretion may include, but are not limited to, the following: Whether compliance objectives would be achieved by issuance of a warning letter. Whether the person who committed the violation had been previously issued a warning letter or assessed an FBAR penalty.

The nature of the violation and the amounts involved. The cooperation of the taxpayer during the examination. Given the magnitude of the maximum penalties permitted for each violation, the assertion of multiple penalties and the assertion of separate penalties for multiple violations with respect to a single FBAR, should be carefully considered and calculated to ensure the amount of the penalty is commensurate to the harm caused by the FBAR violation. There is a penalty ceiling but no minimum amount.

This discretion has been delegated to the FBAR examiner. The examiner may determine that the facts and circumstances of a particular case do not justify a penalty. The examiner may determine that: A penalty under these guidelines is not appropriate, or A lesser amount than the guidelines otherwise provide is appropriate. To qualify for mitigation, the person must meet four criteria: The person has no history of criminal tax or BSA convictions for the preceding 10 years and has no history of prior FBAR penalty assessments.

The person cooperated during the examination. IRS did not determine a fraud penalty against the person for an underpayment of income tax for the year in question due to the failure to report income related to any amount in a foreign account. See IRM 4. Level II-Willful penalties are computed on a per account basis. Level III-Willful penalties are computed on a per account basis..

Level IV-Willful penalties are computed on a per account basis.. The arrangement permits the money transmitter to readily send payments, in the currency of the foreign country, to the recipient. The U.

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