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December 9, 2024 •HoganTaylor
Bitcoin has once again captured global attention by reaching an all-time high of $103,332.30 on December 4, 2024. This milestone not only marks a significant moment for early adopters and investors but also signals a maturing digital asset landscape influenced by supportive political shifts.
Since its inception in 2009, Bitcoin has experienced a rollercoaster of valuations, but the surge in November 2024 stands out. This historic peak reflects growing mainstream acceptance, increased institutional investment, and advancements in blockchain technology. The excitement around Bitcoin isn’t just about its price; it’s about what this means for the future of digital currencies in our financial systems.
Contributing to this bullish market is the crypto-friendly stance of former President Donald Trump. Once skeptical, Trump’s policies have evolved to embrace the potential of blockchain and digital assets. His administration advocated for clearer regulations, aiming to foster innovation while protecting investors. This shift has encouraged businesses and individuals to engage more confidently with cryptocurrencies, further driving demand and market growth.
With the rise in cryptocurrency transactions, understanding how these assets are taxed has become crucial. Cryptocurrency transactions are subject to U.S. tax laws, as outlined in IRS Notice 2014-21. The IRS treats virtual currency as property, meaning transactions are governed by principles applicable to property sales. Taxpayers must report gains or losses from transactions, which are determined by the difference between the currency’s fair market value at receipt and its adjusted basis. These amounts are reported on Form 8949 and Schedule D of Form 1040.
IRS Notice 2019-24 further clarifies scenarios like hard forks and airdrops. If a taxpayer receives new cryptocurrency through an airdrop, the fair market value at the time of receipt is taxable as ordinary income. However, no taxable event occurs if no new cryptocurrency is received during a hard fork.
The addition of a “Digital Asset” question on Form 1040 reflects the IRS’s increasing scrutiny. This mandatory query ensures transparency regarding taxpayers’ involvement in cryptocurrency transactions. Non-compliance or misreporting can lead to penalties.
Cryptocurrency’s decentralized and anonymous nature introduces challenges in maintaining accurate records for tax purposes. Transactions often span multiple wallets and exchanges, many of which lack robust reporting mechanisms. Additionally, activities like staking and earning rewards require detailed tracking of fair market value at the point of control.
As cryptocurrencies become more intertwined with our financial systems, staying informed about tax obligations is more important than ever. The dynamic nature of tax regulations surrounding digital assets requires vigilance and, often, professional guidance.
If you’re involved in cryptocurrency transactions, consider consulting a tax professional who specializes in this area. They can help you navigate the complexities, ensure compliance, and potentially optimize your tax situation.
If you have any questions about the content of this publication, please email James Keehn, Tax Partner, at JKeehn@hogantaylor.com.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.