Wednesday, December 26, 2018

📌 End-of-year Crypto Tax Planning: What You Can Do to Reduce Your Tax Bill

Welcome to another curated signal in a world full of noise.

Instead of our usual compilation of good-reads and trendy headlines, this week we're handing it over to our friend Dean to discuss the all-important crypto tax strategies as 2018 comes to a close. Dean Steinbeck is the Managing Director of Crypto Law Insider and General Counsel of Horizen (formerly ZenCash).

Look for our next issue on Wednesday, January 2. And enjoy the holidays! All the best.

– The CoinSnacks Team

End-of-year Crypto Tax Planning: What You Can Do to Reduce Your Tax Bill

Amid the holiday festivities, a lot of people are tempted to write off the last few days of the year to celebrate with friends and family. But let me encourage you to set aside a few hours over the next few days to do your end of year 2018 tax planning.

Believe me, I know that sitting down with a calculator or tax software to find out what you might owe to the IRS is nobody's idea of a good time. But if you can struggle through it, you might find that you can significantly reduce your tax bill.

This is particularly true for those of you who purchased cryptocurrencies during 2018 at prices higher than they are today. Although your crypto portfolios may have taken a beating, now is the time to take advantage of those losses by using them to offset otherwise taxable gains on your tax return.

So taking the time now to plan your end of year tax moves may result in a lot more champagne and celebrations this time next year.

If you're interested in lowering your 2018 tax bill, read on to learn more about what you can do and what you should ask your accountant—

Quick Disclaimer: This article provides an overview of one applicable tax strategy that could make your crypto portfolio more tax efficient. But before making any decisions you should conduct your own research and consult a crypto tax lawyer and/or a certified accountant to discuss your specific situation. And while this article is geared towards the US tax system, similar strategies can be applied elsewhere.

An Overview of US Crypto Taxation

If you have been trading in and/or using crypto assets this year, you need to understand the tax implications surrounding this asset class. So let's start with the most basic and important tax consideration—how is crypto taxed in the US?

As of 2014, the IRS has classified cryptocurrencies as "property". This subjects crypto investments to capital gain (or loss) along with the associated reporting requirements.

Because cryptocurrencies are property, every time you buy or sell crypto, make a transfer or purchase something with crypto, the IRS requires you to treat the transaction as a taxable event.

This means you must register each transaction amount in its corresponding US dollar value and the date the transaction was completed. That's right, every time you buy a cup of coffee with bitcoin, you're supposed to be converting the amount to US dollars and keeping track of the transaction. And at the end of the year, you're supposed to have all of these transaction records in a spreadsheet for the IRS.

With that information you must then calculate the capital gain or loss overall (with different rules applying to short vs. long term investments) and report all of your gains or losses on your tax return. And of course, you must pay the appropriate tax on your capital gains if you are lucky enough to have any.

As anyone who has complied with these requirements knows, the IRS' crypto accounting requirements are incredibly time-consuming, intrusive, and impractical. But, I'm not here to comment on the justice of these laws, instead I'm here to share what you can do to minimize your tax burden and position yourself for a strong start in 2019.

Considerations for 2018: Tax-Loss Harvesting

With the market at nearly all-time lows, it's been a difficult year for crypto investors. Luckily, there is a silver lining to this, it's called tax-loss harvesting. Here's how it works:

By definition, tax-loss harvesting is the process of selectively selling those investments that have experienced losses in the year. Selling an investment for a loss allows you to realize the loss on your tax return. This enables you to offset some of the taxes you would otherwise owe on your capital gains from other investments that were profitable.

For example, imagine you purchased 1 bitcoin earlier in 2018 for $10,000 USD. Today that same bitcoin is worth $4,000 USD. If you sell your bitcoin you will be entitled to take a $6,000 USD capital loss. This loss will shield otherwise taxable gains you may have from other investments. Moreover, you can sell your bitcoin today and buy it back, so other than some transactions fees you are no worse off if you're still bullish on bitcoin.

The good news is you can use this $6,000 tax-loss to reduce your overall taxable capital gains and even offset up to $3,000 (for married couples, and $1,500 for individuals filing separately) of your ordinary income if you don't have capital gains.

Typically, for most investments, to realize the tax loss, you cannot buy the same asset back within 30 days. Otherwise the IRS will consider it as a 'wash-sale' and undo the realization of the loss. However, in the US, this rule only applies to securities. Since cryptocurrencies are not considered securities by the IRS, you can effectively sell your holdings today and buy them back nearly immediately, while still recording the loss and receiving the corresponding benefits.

However, now that ICOs have been labeled as securities, it is unclear how the IRS will handle wash-sales for tokens like Ethereum. Will the IRS be forced to treat certain cryptocurrencies as property and others as securities? This is an open question industry pundits look forward to getting clarity on.

Although the principle behind tax-loss harvesting is very simple, it is always better to do some planning before using this strategy. I highly recommend you get more information from an expert in the field to see if this strategy will work for you.

Conclusion

Regardless of how you feel about the future of crypto, this might not be the season to HODL. So before you finish up the last of the Christmas cookies, take some time to have a look over your crypto transactions and assess your potential tax liability. With luck, you'll find opportunities to sell your crypto holdings at a loss and receive some tax benefits.

Unfortunately, the laws relating to crypto taxation are complicated and difficult to comply with. And sadly, there are no signs that this will change anytime soon. The onus is on you to understand the laws and to make your decisions accordingly. Like anything, the better you know the rules, the better you can use them to your advantage.

Dean Steinbeck, Managing Director of Crypto Law Insider and General Counsel of Horizen (formerly ZenCash) is a legal expert with over 15 years of experience working with cutting-edge technology startups, software development companies, and cryptocurrencies.

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Wall Street Walks 🚶‍♂️

December 26, 2018

Wall Street is Reportedly Getting Out of the Crypto Market

Over the past of couple years, as crypto saw its mania and demise, rumors have run rampant about major firms becoming involved. Some say that institutions are using the bear market as a buying opportunity. Others say that the fraud and volatility scare away major investors. Now, Bloomberg is reporting that Wall Street is "quietly" exiting crypto.

Let's check in on what is going on at some of the biggest firms:

Goldman Sachs

Goldman, arguably the most respected investment bank, was one of the earliest firms to be involved in cryptocurrency rumors. It made an investment in BitGo and also launched a Bitcoin derivative product.

Now, near the end of the year, Goldman still has not launched its rumored crypto trading desk and its derivative product has little traction.

Morgan Stanley

Morgan Stanley hired Andrew Peel to head its digital assets business earlier in the year and developed a Bitcoin swaps product since at least September.

However, the firm has not yet traded a single contract due to a lack of demand.

Citigroup

Citigroup established a line of cryptocurrency products which they call "digital asset receipts". These products allow institutions to gain exposure to crypto without having to store the underlying asset.

Like Morgan Stanley's swap contracts, Citigroup has too not been able to yet sell its crypto product.

Barclays

Barclays Plc displayed interest in trading cryptocurrencies earlier in the year, appointing two former oil traders to lead a digital assets project: Chris Tyrer and Matthieu Jobbe Duval.

Tyrer ended up leaving the firm in September, and Jobbe Duval followed two months later, according to Bloomberg.

MINING

GMO is Quitting Mining Hardware Manufacturing After 'Extraordinary Loss'

Over and out

Just over a year after Japanese IT giant GMO entered into the mining hardware business, it's already pulling the plug.

The announcement came on Tuesday after management tallied up more than $320 million in losses due to the project.

This figure will be recorded as an "extraordinary loss" on the books and was likely caused by two things:

Increased competition
Poor market conditions

And GMO isn't alone with losses like this, Nvidia, AMD, and even Bitmain have all reported losses in 2018 as miners skipped new equipment.

Still mining though

Despite the losses on mining equipment, GMO still intends to mine cryptocurrencies.

But that sector also isn't looking too pretty. In Q3 and Q2 GMO lost $5.6 million and $3.2 million in mining - mostly caused by increased depreciation costs.

Now, however, GMO is confident it can return a profit as the depreciation cost will "almost be zero after recognizing the impairment cost."

BITCOIN

Bitcoin Pronounced Dead 90 Times During 2018

At every drop of Bitcoin, the media was there to pronounce Bitcoin dead time and time again.

Here are some of are favorite obituaries:

'Worthless' Bitcoin Has Entered Death Spiral: Finance Professor

CCN

Teen Bitcoin Millionaire: "Bitcoin is Pretty Much Dead"

newsBTC

Bitcoin is a 'Dead Man Walking', Claims Creative Planning CIO

CCN

Bitcoin Will Soon Be Dead, Says Wolf of Wall Street

Ethereum World News

ADOPTION

Bank of America Files Another Blockchain Patent, This Time for ATMs

Embracing blockchain

Bank of America (BoA) has been no stranger to blockchain technology. In August it was reported that the traditional financial institution has more than 50 blockchain-related patents filed.

However, the institution has turned the cold shoulder on cryptocurrencies likely because of high investment risk.

Still, it's clear BoA sees an opportunity through the noise.

Eyeing ATMs

On Tuesday, the U.S. Patent and Trademark Office released a new filing from BoA that outlines a new system that uses blockchain technology to help organize cash-handling services.

Specifically, the technology would eliminate the need to transfer large physical sums of cash and enable more transaction volume on devices like ATMs.

For now, though, it's unclear if BoA has begun building its newly released plans or if it is holding off.

BITS

But wait, there's more...

📈 BitMEX CEO Arthur Hayes believes Ethereum 'will quickly test $200' when the ICO market returns.
😦 Bitmain confirmed the layoffs stemming from redundancies in operations.
🇮🇳 A new report says that India may legalize cryptocurrencies but under strict rules.

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