• The US Internal Revenue Service (IRS) has clarified its tax form terms to include digital assets such as NFTs.
• New rules from the US Treasury Department may soon require crypto service providers to report client transactions to the IRS.
• Tax loss harvesting is a technique that allows investors to deduct up to $3,000 in losses against their income each year.
Crypto Taxation in the US
The United States Internal Revenue Service (IRS) has updated its income tax form for 2022 to be more explicit about what counts as crypto holdings and use the term “digital assets” instead of “virtual currency”. This change comes after taxpayers were unsure if NFTs were required to be reported. In addition, the 2021 infrastructure bill tightened crypto reporting requirements further.
Crypto Service Providers
The US Treasury Department is expected to release new rules for crypto service providers which will require them turn over records of client transactions to the IRS. These rules are supposed take effect in January, but have been postponed until the text can be finalized.
Tax Loss Harvesting
Crypto investors who are sitting on losses can use a popular technique known as tax loss harvesting in order to deduct up to $3,000 in losses against their income each year. This involves selling assets at a loss before the end of the tax year, and then buying back the same asset shortly after in order realize the loss.
Investors with Funds Trapped
Some crypto owners may still be liable to pay taxes on interest earned on their crypto even though they may have had their funds trapped by bankrupt companies like FTX and have been unable sell off any assets or realize any losses due this situation .
Crypto holders face tricky taxation situations when it comes time for filing taxes next week in the US with many adjustments being made by both IRS and Treasury Department due new information regarding NFTs and other digital assets now having come into play as well as various techniques such as tax loss harvesting that can help investors mitigate losses from last year’s market downturns but also create issues for those with funds locked away by recent bankruptcies of certain companies like FTX