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Navigating Crypto Tax Season with Patrick Camuso, CPA

By Unlayered

Published on 2024-04-09

Discover essential crypto tax strategies from CPA Patrick Camuso, covering NFTs, hacks, IRS compliance, and more. Learn how to navigate the complexities of crypto taxes and stay ahead of regulatory changes.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

The Unique Challenges of Crypto Taxes

Cryptocurrency taxation presents a unique set of challenges that set it apart from traditional asset classes like stocks. The primary factor contributing to this complexity is the self-custody component of cryptocurrencies. Unlike traditional securities where centralized brokers provide comprehensive transaction data and cost basis information through 1099 forms, crypto investors often manage their assets across multiple centralized exchanges and non-custodial wallets. This decentralized nature of crypto assets means there is no single source of truth for all your transactions and cost basis information.

Patrick Camuso, a crypto-focused CPA since 2016, explains: "As a result, there's not going to be one centralized place that is going to have access to all of your transactions and all of your cost basis information." This lack of centralized reporting shifts the burden of accurate record-keeping and tax reporting onto the individual investor. Camuso emphasizes that "the responsibility starts to fall on you as the taxpayer to start to produce your own accounting system in order to ensure that you're accurately calculating this and filing filing taxes."

Crypto as Property: Tax Implications

The Internal Revenue Service (IRS) classifies most cryptocurrencies as property for tax purposes, a stance that has remained unchanged since 2014. This classification has significant tax implications for crypto investors. Camuso clarifies, "Generally speaking, yes, cryptocurrency is taxes property, especially if we're talking about just a fungible crypto, like Bitcoin or Ethereum."

This property classification means that any time you relinquish cryptocurrency for value, it triggers a taxable event. Camuso elaborates: "Basically, if you're going to trade, exchange, or spend a cryptocurrency, it's going to have a tax moment." This applies to various scenarios, including trading one cryptocurrency for another, using crypto to make purchases, or even transferring crypto between wallets in some cases.

The taxable nature of these transactions can catch many investors off guard, especially during bull markets when frequent trading is common. Camuso warns, "Even if you are aware that they're taxable and you're not tracking it, this can start to get away from you. And these on-chain transactions, where you're having taxable transactions, for instance, with Ethereum or Solana, and it just constantly is going up in price, that can start to add up quickly."

NFTs and Their Tax Treatment

Non-fungible tokens (NFTs) have introduced another layer of complexity to crypto taxation. When it comes to NFTs, Camuso advises treating them primarily from a capital gains perspective for investors buying and selling them. He explains, "Usually when we're looking at an NFT, from someone that's buying and selling it as an investor, we're going to be mostly focused on capital gains."

Using an example, Camuso illustrates: "If you purchase one, an NFT for one soul and you sell it for 50 soul, that one soul is gonna be your initial cost basis." He further clarifies that minting an NFT with cryptocurrency like Solana is itself a taxable event. The cost basis of the NFT becomes the value of the cryptocurrency used to mint it at the time of the transaction.

However, NFTs also introduce potential sales tax implications, which Camuso identifies as an emerging issue in the crypto space. He notes, "There's been several states that have indicated that, you know, sales taxes are applicable to certain NFTs, including some states referencing standalone NFTs." This creates a significant tax risk for NFT sellers and marketplaces, as some states are applying existing definitions of digital products and goods to NFTs, potentially allowing for retroactive taxation.

The Importance of Tracking Rolling Balances

One of the most critical aspects of managing crypto taxes is maintaining accurate records of your crypto holdings and transactions. Camuso strongly advocates for using software solutions to track rolling balances and transaction history. He states, "You definitely want to use the software. Now, there are many solutions out there, and there's new ones that are popping up every day."

However, Camuso cautions that no single platform is likely to perfectly capture all blockchain transactions, especially for those involved in yield farming or using obscure blockchains. He advises, "You want to create a good accounting system and workflow on a software that is going to work for you. And maybe at least initially is serving you well with its with its blockchain coverage and its capabilities, given like the type of assets that you're transacting on."

For transactions on new exchanges or chains not supported by your primary software, Camuso recommends obtaining API data from other sources and importing it into your main accounting software. He emphasizes the importance of regular data maintenance and manual imports to ensure comprehensive coverage of all your crypto activities.

The Crucial Step of Reconciliation

Camuso highlights a critical step in crypto tax preparation that is often overlooked: reconciling calculated ending balances with actual wallet balances. He explains, "Once you do your calculation or your CPA does your calculation, if they're saying you have, you know, a hundred Solana at the end of the year, you should compare that across your wallets and exchanges and see if you actually have the hundred Solana."

This reconciliation process is crucial for identifying discrepancies that could indicate missing transactions or errors in the tax calculation. Camuso warns that inaccuracies in current year calculations can have a cumulative effect, impacting future years' tax filings as well. He stresses, "This is going to just follow you around forever. And, you know, to the many people I know that are out there that probably, you know, haven't done their accounting for years, this is also an issue because the further you put this off, the further we're going to have to go back to get an accurate cost basis calculation."

When to Engage a CPA for Crypto Taxes

As crypto portfolios become more complex, the question of when to engage a professional CPA becomes increasingly relevant. Camuso provides guidance on this matter, suggesting that investors with simple spot buying on major exchanges like Coinbase may not necessarily need a CPA's assistance. However, he advises, "Once you get into custody and funds across many different blockchains and getting involved in complex D5 protocols, NFTs, you know, whatever the next emerging trend is going to be this cycle, that's going to create all of these data challenges, which then, you know, is going to create accounting challenges."

For investors with more complex portfolios spanning multiple wallets, protocols, and blockchains, working with a CPA becomes increasingly beneficial. Camuso emphasizes the importance of ensuring accuracy in accounting and taking correct tax positions, especially given the evolving nature of the crypto space and increasing IRS scrutiny.

Filing Extensions and Tax Preparation

As the tax filing deadline approaches, many crypto investors may find themselves unprepared to file on time. In such cases, filing for an extension can provide additional time to properly prepare tax returns. Camuso explains, "Filing an extension is going to give you more time to file your return. It's not an extension to actually pay your taxes."

For personal returns, filing an extension by April 15 typically extends the filing deadline to October 15. However, Camuso stresses that any tax liability should ideally have been addressed through quarterly estimated tax payments. He warns, "If you're after right now and you have a tax liability, you should expect on your payment penalties at the very least."

Camuso advises that the tax preparation process for complex crypto portfolios can take anywhere from one to three months. This timeline includes onboarding, transaction categorization, reconciliation, due diligence, and review processes. He emphasizes the importance of not delaying the process even after filing an extension, recommending that investors "immediately start on your accounting and get that process accurate. So, hopefully, you can be filing sometime early summer."

Tax Treatment of Hacks and Phishing Attacks

The crypto space is unfortunately prone to hacks and phishing attacks, which raise questions about the tax treatment of lost assets. Camuso acknowledges the difficulty of this scenario from a tax perspective, stating, "In many scenarios, you're not really going to get any type of tax deduction when you do get hacked."

He explains that the best way to potentially deduct such losses would be as a casualty loss, which was largely eliminated as a tax option for individuals by the Tax Cuts and Jobs Act of 2017. Camuso notes, "Usually, you know, just theft of personal property, like crypto, in a, in like, just like a, in example, where you're losing it out of your wallet, it's going to be difficult to find an avenue to deduct that with, with the current way that the taxes are set up."

This lack of clear tax relief for hack victims adds another layer of risk to crypto investing and underscores the importance of robust security measures.

Pricing Data for Low Liquidity Assets

One of the challenges in crypto tax reporting is obtaining accurate pricing data, especially for low liquidity assets or newly launched tokens. Camuso advises on the importance of due diligence in sourcing pricing data, particularly for assets with substantial gains or losses. He recommends, "You want to make sure that that pricing data is accurate, that, you know, you're picking up the best source of pricing data, which is going to be the place where you can see the most volume that's taking place, where there's publicly available data."

For more obscure coins, finding reliable pricing data can be challenging. Camuso suggests using the best available sources consistently across your portfolio. He emphasizes, "You want to follow a consistent approach in sourcing the data to the greatest degree possible." This consistency in methodology is crucial for maintaining the integrity of your tax reporting and defending your positions in case of an audit.

The Importance of Consistent Methodology

Consistency in tax reporting methodology is a critical aspect of crypto taxation that Camuso believes is often overlooked. He points out a common misconception regarding the use of specific accounting methods like HIFO (Highest In, First Out), which is not an acceptable method for crypto according to IRS guidelines.

Camuso explains, "If you go and log into most of these accounting platforms, you have choices of hypo, hypo, average cost, none of those are applicable to crypto." He clarifies that the IRS requires the use of FIFO (First In, First Out) unless the taxpayer meets specific standards for specific identification.

The challenge arises when investors commingle their crypto assets across multiple wallets and exchanges. Camuso warns, "If you're taking a fungible cryptocurrency like Solana and maybe purchasing it across a number of exchanges and just, you know, transferring it into different not custodial wallets and just commingling it all together, when you go and you take any one of these Solana, you're not going to be able to choose like which one you sent in exchange and sell."

This commingling of assets makes it difficult to justify the use of specific identification methods, potentially creating audit risks. Camuso advises defaulting to FIFO unless investors can clearly demonstrate that they're managing their funds in a way that allows for specific identification of individual units of cryptocurrency.

Emerging Regulatory Challenges

Camuso highlights upcoming regulatory changes that could significantly impact the crypto tax landscape. He mentions proposed broker regulations that aim to increase tax compliance in the crypto space. These regulations would require a broad range of entities involved in facilitating crypto transactions to issue tax reporting and perform Know Your Customer (KYC) procedures, similar to traditional financial institutions.

The implications of these regulations could be far-reaching. Camuso explains, "Even something like, you know, Uniswap would be considered a broker. So these get implemented, you know, Uniswap would either have the KYC or start geogating, you know, US, US, US, US investors are people that want to use, use their platform."

While these regulations are still proposed and not yet in effect, they signal a move towards increased oversight and data collection in the crypto space. Camuso notes that this could lead to "unprecedented data that gets collected" and potentially create new compliance challenges for both individuals and platforms in the crypto ecosystem.

The Importance of Proactive Tax Management

Throughout the discussion, Camuso emphasizes the importance of proactive tax management for crypto investors. He advises against leaving tax considerations as an afterthought, noting that staying on top of your crypto taxes can even uncover potential tax benefits.

Camuso warns that IRS tax enforcement in the crypto space is likely to increase, citing recent developments such as the first indictment from the Justice Department related to crypto tax evasion. He advises, "Just focusing on compliance, not leaving it as an afterthought, not making some of these tax mistakes that we discussed. That all comes back to just getting your accounting updated and working with a knowledgeable CPA."

By staying informed about crypto tax regulations, maintaining accurate records, and working with knowledgeable professionals, crypto investors can navigate the complex tax landscape more effectively and minimize potential risks.

The Future of Crypto Taxation

As the crypto space continues to evolve, so too will the tax implications and regulatory landscape. Camuso anticipates that future developments, such as the issuance of securities on blockchain and the representation of real-world assets as non-fungible tokens, will further complicate the tax picture.

He notes, "This is going to get more complex, I believe, from a tax perspective. And we have seen some indications of that." This evolving landscape underscores the importance of staying informed and adaptable when it comes to crypto tax strategies.

Camuso also predicts that as the IRS becomes more sophisticated in its approach to crypto taxation, audit strategies may evolve. He suggests that after focusing on non-filers, the IRS may move on to scrutinizing the accounting methods used by crypto investors, particularly those using specific identification methods without proper substantiation.

Preparing for Increased IRS Scrutiny

With the IRS showing increased interest in crypto tax compliance, Camuso advises investors to prepare for potential audits. He recommends maintaining detailed records of all crypto transactions, including the reasoning behind any tax positions taken.

Camuso suggests, "You want to contemporaneously document that. So just make good notes to document the tax position in reasons that you can use to support it." This documentation can be crucial in defending your tax positions in case of an IRS inquiry.

Furthermore, Camuso emphasizes the importance of consistency in your approach to crypto taxation. Whether it's in sourcing pricing data, choosing accounting methods, or categorizing transactions, maintaining a consistent and well-documented methodology can help strengthen your position in case of an audit.

The Role of Technology in Crypto Tax Compliance

As the complexity of crypto taxation increases, technology plays a crucial role in helping investors stay compliant. Camuso strongly advocates for the use of software solutions to track crypto transactions and calculate tax liabilities. However, he cautions that no single solution is likely to be perfect, especially for investors engaged in activities across multiple blockchains or using obscure protocols.

Camuso advises, "You want to create a good accounting system and workflow on a software that is going to work for you." He suggests supplementing software solutions with manual data imports and regular reconciliations to ensure comprehensive coverage of all crypto activities.

The future may bring more integrated solutions, potentially leveraging blockchain technology itself to streamline tax reporting. However, for now, a combination of software tools and human expertise remains essential for navigating the complexities of crypto taxation.

The Impact of Market Volatility on Tax Liabilities

One of the unique challenges of crypto taxation is the impact of market volatility on tax liabilities. Camuso highlights the risk of incurring tax liabilities based on high crypto valuations, only to see those assets depreciate significantly before tax payment is due.

He warns, "What I do is inevitably see each cycle is people, they get all this euphoria during each bull cycle and everyone feels like it's never going to come down. And then it feels like the bear markets always come right before tax season." This scenario can leave investors in a position where they owe taxes on gains that have since evaporated.

To mitigate this risk, Camuso recommends setting aside funds for tax liabilities as gains are realized, preferably in stable assets or fiat currency. This approach can help investors avoid the need to liquidate depreciated crypto assets to meet tax obligations.

The Importance of Education in Crypto Taxation

Throughout the discussion, Camuso emphasizes the importance of education in navigating the complexities of crypto taxation. As the space evolves rapidly, staying informed about regulatory changes, tax implications of new crypto primitives, and best practices for record-keeping is crucial.

Investors should seek out reliable sources of information, attend webinars or workshops on crypto taxation, and consider working with tax professionals who specialize in cryptocurrency. Camuso notes, "You really have to take it step-by-step and make sure that whatever asset type is or the specific protocol that you're looking at, you understand the mechanisms of it. And then you can start to build a tax position around."

By investing in education and staying informed, crypto investors can make more strategic decisions, minimize tax liabilities, and avoid costly mistakes.

The Global Perspective on Crypto Taxation

While the discussion focuses primarily on U.S. tax regulations, it's important to note that crypto taxation is a global issue. Different countries have varying approaches to taxing cryptocurrency transactions, creating additional complexity for international investors.

Camuso mentions the existence of J5 agreements, where tax authorities from different countries share information to combat crypto-related tax evasion. This international cooperation highlights the global nature of crypto taxation and the increasing efforts of tax authorities worldwide to ensure compliance.

For investors operating across multiple jurisdictions, understanding the tax implications in each relevant country becomes crucial. This may involve consulting with tax professionals familiar with international crypto taxation or using specialized software capable of handling multi-jurisdictional tax calculations.

The Role of Crypto Exchanges in Tax Reporting

Centralized crypto exchanges play a significant role in tax reporting, often providing users with transaction history and, in some cases, tax forms like 1099-K. However, Camuso points out that relying solely on exchange-provided information may not be sufficient for accurate tax reporting, especially for active traders or those using multiple platforms.

He explains, "So if you're just trading more traditional securities, usually you're going to get a 1099 in the mail. And for the most part, that 1099 is going to be accurate other than just for more fringe cases. And you can basically rely on that as a CPA in order to file taxes. But when it comes to cryptocurrency, you may be trading across multiple centralized exchanges along with multiple non-custodial wallets."

This underscores the importance of maintaining your own comprehensive records and not relying solely on exchange-provided data for tax reporting.

The Tax Implications of DeFi Participation

Decentralized Finance (DeFi) protocols introduce additional complexities to crypto taxation. Activities such as liquidity provision, yield farming, and staking can generate taxable events that may not be immediately apparent to participants.

Camuso advises that investors involved in DeFi should pay particular attention to tracking their activities and understanding the tax implications of each transaction. He notes, "Once you get into custody and funds across many different blockchains and getting involved in complex D5 protocols, NFTs, you know, whatever the next emerging trend is going to be this cycle, that's going to create all of these data challenges, which then, you know, is going to create accounting challenges."

For those deeply involved in DeFi, working with a tax professional familiar with these protocols may be particularly beneficial in ensuring accurate reporting and identifying potential tax optimization strategies.

The Importance of Regular Tax Planning

Camuso emphasizes the value of regular tax planning for crypto investors. Rather than addressing tax issues only at the end of the year or during tax season, he recommends ongoing monitoring and planning throughout the year.

He suggests, "You want to periodically update your accounting and run a basic tax projection to understand what your tax liabilities are." This approach allows investors to make informed decisions about realizing gains or losses, timing transactions, and setting aside funds for tax liabilities.

Regular tax planning can help investors avoid surprises at tax time and may reveal opportunities for tax optimization strategies, such as tax-loss harvesting or timing of capital gains realization.

The Potential for Tax Reform in Crypto

As the crypto industry matures and gains more mainstream adoption, there's potential for tax reform specifically addressing cryptocurrency. Camuso notes that the current treatment of crypto as property, established in 2014, may evolve as the market develops and new use cases emerge.

He speculates, "Can that evolve in the future as the market evolves? And we start to see securities get issued on chain. And we start to see non-fungible tokens possibly representative of real-world assets. This is going to get more complex, I believe, from a tax perspective."

Investors should stay informed about potential changes in tax law and be prepared to adapt their strategies accordingly. This may involve following legislative developments, participating in industry advocacy efforts, or consulting with tax professionals who are actively monitoring potential reforms.

The Importance of Accurate Cost Basis Tracking

One of the fundamental challenges in crypto taxation is maintaining accurate records of cost basis for all crypto assets. This becomes particularly complex when dealing with assets acquired through various means such as purchases, trades, mining, staking rewards, or airdrops.

Camuso emphasizes the importance of tracking cost basis, explaining, "So say you get air drop $10,000. You're going to have $10,000 of income. Let's say you're paying 30, 40% tax on that. Let's say you have a 3K tax liability based off of that. Now that 10K income also is going to establish your cost basis."

Accurate cost basis tracking is crucial not only for calculating capital gains or losses upon sale but also for optimizing tax strategies such as selecting specific lots for sale or donation. Investors should consider using specialized crypto tax software or working with professionals to ensure accurate cost basis records are maintained.

The Challenges of Cross-Chain Transactions

As the crypto ecosystem expands to include multiple blockchains, cross-chain transactions introduce additional complexity to tax reporting. Moving assets between different blockchains or using cross-chain bridges can trigger taxable events that may not be immediately apparent.

Camuso advises, "As you add more chains, there's different infrastructure, wallet providers, et cetera. That makes it exponentially more complex." Investors engaging in cross-chain activities should be particularly diligent in tracking these transactions and understanding their tax implications.

This may involve using specialized software capable of tracking cross-chain movements or working with tax professionals familiar with the intricacies of multi-chain ecosystems like Solana's thriving DeFi landscape.

The Impact of Staking and Governance Participation

As Proof-of-Stake blockchains like Solana gain prominence, participation in staking and governance activities introduces new tax considerations. Staking rewards are generally treated as income at the time they are received, similar to mining rewards.

Camuso notes, "When you receive that air drop, it's going to be taxable to you at the de-in-time that you receive it. And the level of tax that you're going to pay is going to be income taxes based off of the fair market value at that time." This principle likely extends to staking rewards as well.

Participation in governance, such as voting on proposals or receiving governance tokens, may also have tax implications. Investors actively involved in these activities should maintain detailed records and consider consulting with tax professionals familiar with the nuances of blockchain governance participation.

The Importance of Separating Personal and Business Activities

For individuals who are deeply involved in the crypto space, distinguishing between personal investment activities and business activities becomes crucial from a tax perspective. Activities such as frequent trading, mining, or running nodes might be considered business activities by tax authorities, potentially allowing for different tax treatments and deductions.

Camuso advises, "You really have to take it step-by-step and make sure that whatever asset type is or the specific protocol that you're looking at, you understand the mechanisms of it. And then you can start to build a tax position around." This includes understanding whether your activities might be classified as a business and structuring your operations accordingly.

Individuals engaged in crypto-related business activities should consider consulting with tax professionals to ensure proper classification and take advantage of any applicable business deductions or structures.

The Role of Tax-Loss Harvesting in Crypto

Given the volatility of crypto markets, tax-loss harvesting can be a powerful strategy for managing tax liabilities. This involves selling assets at a loss to offset capital gains, potentially reducing overall tax burden.

However, Camuso cautions about the complexities of applying this strategy in crypto, particularly given the frequent trading and unique nature of many crypto assets. He notes, "You want to make sure that you're aware of that, et cetera." This includes being aware of wash sale rules, which, while not explicitly applied to crypto under current U.S. tax law, could potentially be considered by the IRS.

Investors considering tax-loss harvesting should carefully track their transactions, be aware of the holding periods for long-term vs. short-term capital gains treatment, and consider consulting with a tax professional to optimize their strategy.

Preparing for Future Regulatory Changes

Throughout the discussion, Camuso emphasizes the evolving nature of crypto taxation and the likelihood of future regulatory changes. He mentions proposed broker regulations that could significantly impact the crypto ecosystem, potentially requiring a wide range of entities to perform KYC and issue tax reports.

Camuso advises, "You want to contemporaneously document that. So just make good notes to document the tax position in reasons that you can use to support it." This approach of maintaining detailed records and documenting the reasoning behind tax positions can help investors navigate potential future regulatory changes or audits.

Staying informed about proposed regulations, participating in public comment periods when available, and working with tax professionals who are actively monitoring regulatory developments can help investors prepare for and adapt to future changes in the crypto tax landscape.

The Importance of Crypto Tax Compliance

In concluding the discussion, Camuso emphasizes the critical importance of crypto tax compliance. As regulatory scrutiny increases and tax authorities become more sophisticated in tracking crypto transactions, the risks of non-compliance grow significantly.

Camuso advises, "Don't sleep on your taxes every week. I'm having people come to my firm that haven't filed for several years. And although it's something we can manage, you know, it's always better to stay on top of this." He notes that staying compliant not only mitigates risk but can also uncover potential tax benefits.

By prioritizing tax compliance, maintaining accurate records, and working with knowledgeable professionals, crypto investors can navigate the complex tax landscape more effectively, minimize potential risks, and focus on capitalizing on the opportunities presented by the evolving crypto ecosystem.

Facts + Figures

  • Cryptocurrency is generally taxed as property by the IRS, a stance unchanged since 2014.
  • Any relinquishment of cryptocurrency for value, including trading, exchanging, or spending, triggers a taxable event.
  • NFT minting with cryptocurrency is considered a taxable event, with the cost basis being the value of the cryptocurrency used at the time of minting.
  • Some states are indicating that sales taxes may be applicable to certain NFTs, potentially allowing for retroactive taxation.
  • Airdrops are typically taxed as income at the fair market value at the time of receipt.
  • The tax preparation process for complex crypto portfolios can take anywhere from one to three months.
  • Filing an extension for taxes extends the filing deadline but not the payment deadline.
  • Losses from hacks or phishing attacks are generally difficult to deduct under current tax laws.
  • The IRS claims there is a 75% non-compliance rate in crypto tax filings.
  • Proposed broker regulations could require a wide range of entities in the crypto space to perform KYC and issue tax reports.
  • FIFO (First In, First Out) is the default accounting method required by the IRS for crypto unless specific conditions for specific identification are met.
  • The Tax Cuts and Jobs Act of 2017 largely eliminated casualty losses as a tax deduction option for individuals.
  • Cross-chain transactions and participation in DeFi protocols can create additional tax complexities.
  • Staking rewards are generally treated as income at the time they are received.
  • Regular tax planning and updating of crypto accounting is recommended, ideally on a monthly or quarterly basis.

Questions Answered

What makes crypto taxes different from traditional asset taxes?

Crypto taxes are unique due to the self-custody component of cryptocurrencies. Unlike traditional securities where centralized brokers provide comprehensive transaction data, crypto investors often manage assets across multiple exchanges and non-custodial wallets. This decentralization means there's no single source of truth for all transactions and cost basis information, shifting the burden of accurate record-keeping onto the individual investor.

How are cryptocurrencies classified for tax purposes?

The IRS classifies most cryptocurrencies as property for tax purposes, a stance unchanged since 2014. This classification means that any time you relinquish cryptocurrency for value - whether trading, exchanging, or spending - it triggers a taxable event. The tax implications can be significant, especially for frequent traders or those using crypto for purchases.

How are NFTs taxed?

NFTs are primarily treated from a capital gains perspective for investors buying and selling them. The initial purchase or minting of an NFT with cryptocurrency is itself a taxable event. The cost basis of the NFT becomes the value of the cryptocurrency used to acquire it at the time of the transaction. Additionally, some states are beginning to indicate that sales taxes may be applicable to certain NFT transactions, potentially allowing for retroactive taxation.

What should I do if I've been hacked or phished and lost crypto?

Unfortunately, losses from hacks or phishing attacks are generally difficult to deduct under current tax laws. The best way to potentially deduct such losses would be as a casualty loss, but this option was largely eliminated for individuals by the Tax Cuts and Jobs Act of 2017. In most scenarios, you won't get any type of tax deduction when you get hacked, making it crucial to prioritize security measures to protect your crypto assets.

How important is it to track my crypto transactions accurately?

Accurate transaction tracking is crucial for crypto tax compliance. It's important to maintain detailed records of all transactions, including purchases, sales, trades, and receipts of crypto through mining, staking, or airdrops. Regular reconciliation of your calculated crypto balances with your actual wallet balances is also critical. Inaccuracies in current year calculations can have a cumulative effect, impacting future years' tax filings as well. Using specialized crypto tax software and potentially working with a knowledgeable CPA can help ensure accuracy in your record-keeping and tax reporting.

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