December 10, 2018

New Tax Law Impacts Cryptocurrency Investors

Last year, Congress passed a sweeping tax reform that affects the way every American taxpayer manages and files their taxes. The law has changed everything from allowable deductions to the individual income tax brackets, and while most of us will be saving money under the reformed tax policies, complying with all of these changes is sure to be a challenge for many. This is particularly true in the cryptocurrency investment community, as several changes in the tax code affect how digital coin users will be filing their taxes this year.

The federal tax law includes six primary provisions that will affect cryptocurrency users. The most important changes pertain to like-kind exchanges, loss carrybacks, the updated corporate tax rate, the business interest deduction, updated miscellaneous personal deductions, and treatment of pass-through income. Cryptocurrency investors who plan ahead can save big on their tax bill for 2018, but many opportunities are limited to only this calendar year.

For example, Section 1031 of the tax code, which allows capital gain taxes to be deferred for certain “like-kind exchanges” of property for other similar property, has left cryptocurrency investors and professionals scratching their heads. This provision will end up affecting cryptocurrency investors in particular because in the past certain cryptocurrency transactions qualify as a like-kind exchange that is exempt from capital gains tax.  Consider an example: imagine if you sold the one Bitcoin for an equivalent amount of Ether. This is the exchange of one property for another that could have fallen under the like-kind exemption for prior years, but no longer under the new tax law. The reformed tax code expressly states that like-kind exchange exemption applies to real estate swaps only. This closed the possibility of claiming a like-kind exchange for coin trades starting on January 1, 2018.

In today’s cryptocurrency markets, we’re seeing a lot of red. While this is bad news for most of us in the cryptocurrency investment community, the down market has its upsides. By making smart moves under the new provisions of the reformed federal tax laws, cryptocurrency investors can make trades that help them manage their tax liability for 2018. If you’re a cryptocurrency trader and think you may need tax help this year, contact your local Happy Tax representative today. Happy Tax’s in-house team of CPAs includes some of the best cryptocurrency accountants in the business, and they’re ready to answer any questions you may have about how to make the changes in the tax law work for you.

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