‘Crypto has a target on its back with the IRS’: Bitcoin exec on Yahoo Finance Live

Crypto investors might want to secure all relevant tax information this season: the IRS and the Security and Exchange Commission (SEC) are paying extra attention to digital assets.

“Given that crypto does have a target on its back,” Terrence Yang, Swan Bitcoin managing director, told Yahoo Finance LIVE (Video above), “make sure you collect documentation on sales and in crypto investments that went to zero, as many of them did last year when the bubble burst.”

Yang’s advice came as last year’s “crypto winter” wiped out investors, who lost much value in their cryptocurrencies as the market plunged more than 60% since the November 2021 highs and decimated over $2 trillion market value. And while most people paid a sizable bill for hefty capital gains in 2021, many were surprised to learn that capital losses could be limited on tax returns.

To help alleviate investors’ pain of crypto losses and limited tax benefits, Yang recommended hiring an accountant and giving them enough time to “think of tax deductions and credits.” In addition, Yang suggested investors make “lemonade out of lemon” by harvesting Bitcon capital losses.

Harvest?

The crypto executive recommended that Bitcoin investors harvest their losses for the future — this means taxpayers who generated unrealized losses in Bitcoin can sell their Bitcoins and then rebuy them, a process that creates a capital loss on their returns.

Although the IRS has rules and limitations on capital loss usage, any remaining capital losses can be rolled forward to other tax years.

“A lot of us saw… unrealized losses in our Bitcoin exposure because many of us bought during the bull market, during the hype in 2021,” said Yang. “You could sell immediately, rebuy and lock in that tax benefit by realizing your capital loss.”

However, this benefit only applies to Bitcoin, not the majority of other cryptocurrencies. Bitcoin is currently regulated as a commodity while the majority of other cryptocurrencies are generally classified as securities under the SEC that are subject to the wash sales rule.

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“In the past I would have said crypto [along with Bitcoin],” said Yang, “but given that the SEC and the IRS are taking a new and more aggressive look at and considering them securities, you actually can’t rebuy crypto immediately because you would violate the SEC’s 30 day wash sale rule.”

Regardless of what digital asset holders do with their virtual coins, Yang reminded investors that for this tax season, “your goal should be to pay the correct amount of taxes to avoid penalties, take advantage of tax benefits, and reduce your audit risk.”

Rebecca is a reporter for Yahoo Finance.

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