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- [00:00]
A
If you were audited, then the IRS sees that like you were using these privacy coins like Monero or something, then there's just a higher burden of proof on taxpayers to show their record keeping to prove what they bought these for, what their cost basis was. Because if you don't have the records and then you're audited, if you don't have any proof showing this is what I actually bought like my Monero for or whatever, then the default is to just treat it as a $0 basis, which obviously it's a big problem. Foreign.
- [00:32]
B
Hey everyone. Welcome to Unchained, your no hype resource for all things crypto. I'm your host, Laura Shin. Thanks for joining this live stream. Before we get started, a quick reminder, nothing new here in Unchained is investment advice. This show is for informational and entertainment purposes only, and my guest and I may hold assets discussed on the show. For more disclosures, visit Unchained Crypto.com this.
- [00:54]
C
Episode is brought to you by Adaptive Security, the first cybersecurity company backed by OpenAI. As AI makes deep fakes and synthetic identities easier than ever, Adaptive helps companies test and strengthen their defenses. Learn more@adaptivesecurity.com if crypto taxes feel overwhelming, you are not alone. That's why Crypto Tax Girl, a team that's been helping crypto investors since 2017, is offering $100 off on one on one crypto tax help. To get $100 off your crypto tax services, go to CryptoTaxGirl.com Unchained Again, that's CryptoTaxGirl.com Unchained.
- [01:37]
B
And as you could expect, today's topic is 2025 crypto taxes. Here to discuss is Laura Walter, founder and CPA of crypto tax Girl. Welcome, Laura.
- [01:48]
A
Thanks, Laura, for having me. I'm excited to be here.
- [01:51]
B
Yeah, I'm excited to have you. So with the way the crypto markets ended in 2025, the audience might be wondering what it is that they have to pay taxes on. If you're new to crypto, I hate to inform you, but it doesn't work that way. So this year there's actually a few new developments that people should know about for their taxes. So, Laura, we'll start with this new form, the 1099da, which stands for Digital Asset Proceeds from Broker Transactions. And this is a new form that brokers will be sending to their customers. So explain what this form is and what information will be on it.
- [02:34]
A
Yeah, I'm glad we're jumping right into this because honestly, 2025 I think is kind of set up to be one of the most complicated year when it comes to reporting crypto taxes for anyone in the crypto space. I think this 1099 DA was maybe created in somewhat to try and make crypto taxes easier because to date it's been all self reported and it's something that you have to calculate on your own. But 1099 DA makes it so that you still actually need to report and calculate the majority of it on your own. But you have to also match it up to this new 1099 DA form and some supplement a lot of it. So I'll kind of go into more details of what that means. But this form, as you mentioned, is going to be issued by any US based exchanges. So obviously like Coinbase, Kraken, Gemini, Binance, US crypto.com, uphold, even like Robinhood and PayPal. Anywhere where you've held crypto on a centralized exchange in the US they're required to issue this 1099 DA.
- [03:33]
B
Okay, and so what information will be on it? And like when should people expect to receive this?
- [03:42]
A
Yeah, so I'm glad we're talking about it now because right now is like the end of January and these are going to be issued sometime soon, honestly could be like next week or it could be the next couple of weeks. The deadline to receive them is February 17th. That's the date that the exchanges have to issue them to their users. So you should get it by February 17th, especially if you're on a big exchange. If you're on kind of a smaller one, there's a chance you may get it later because technically the IRS recently issued the Safe harbor relief which allows exchanges to actually issue them up to a year late, which is a big problem for taxpayers. If they do one of these places that's going to take advantage of it because you know, a year later your taxes are already due. So if you're on a like small exchange and you haven't issued it, been issued it by February 17th, I'd probably like recommend reaching out or maybe they'll have some sort of information indicating when you might receive it. But if you are expecting to receive one of these, definitely wait to file your taxes until February 17th. Today is actually the day that e filing opened for the US and so now you can start filing your taxes. But just wait until you get this because it'll be way harder if, if it doesn't match and there's number discrepancies, it may trigger an audit. Even if you did Report your crypto. So wait till you get it. And then when you do get it, I will say, like it might look a little bit, you know, crazy when you get it. So don't freak out. And the reason being is that it's only going to show the proceeds, so the sales proceeds of anything that you traded or sold on that platform. So the number on it will likely be a lot higher than what you're anticipating. And that number doesn't indicate like how much crypto you held. It doesn't indicate what your gains are. It's just the, the total of everything traded and sold. So for example, you could take like a hundred dollars and invest it on Coinbase. And then a hundred times throughout the year you could buy and sell that a hundred dollars, but still you only have a hundred dollars. I mean, hopefully you'd be able to increase it. But even if you really just trade it back and forth between stables the whole year, for some reason, your 1099 DA would actually show $10,000 because it's just the total of all of those. So. So if you see a really big number on that, like, don't freak out, it kind of is similar ish to a few years ago. I guess now it was more than that. It was like 2017, 2018, when Coinbase issued 1099Ks again, that was like a whole mess, but they had giant numbers on it and people were freaking out. But really you can back into them and we'll be able to supplement it with. If you do your whole crypto calculations, but just know that's what that number means and then it will not have the cost basis on there for the majority of exchanges being. Because let's say you transferred something in from your Trezor into Coinbase and then you sold it. Coinbase doesn't know when you bought that. Like let's say it's Bitcoin, for example. Let's say they don't know when you bought that bitcoin, they don't know if you bought it in 2012 or yesterday. And they don't know like how much you bought it for or how long you've held it. And so it's, it's just left blank. And then taxpayers have to go in and supplement that number with their own calculations.
- [06:59]
B
Oh, I see. And do you do that on the exchange or do you just do it on your taxes?
- [07:06]
A
Just on your taxes for 2025. So the 1099 DA will have like a box checked indicating that the cost basis wasn't reported to the irs. And then that means the taxpayer has to go in and supplement it. But it's really, really important that if you do get a 1099 and you're reporting your taxes yourself, like on TurboTax or you're working with a CPA that maybe isn't very familiar with crypto, that you make sure you put that cost basis number in there, because if not, the default will be zero. And so if you leave it as zero or your CPA leaves it as zero, that will cause you to substantially overpay on your taxes.
- [07:44]
B
Yeah, yeah. Especially if you bought Bitcoin at, you know, like 70K.
- [07:50]
A
Totally. Yeah. I know most, I mean, most people have cost basis, especially high basis. And so, yeah, putting that on there is going to make a big difference. You might have even end up not having a gain, you might end up having a loss. Instead. Your basis might be higher than what the proceeds show.
- [08:05]
B
Yeah, and you mentioned that this form is going to make this year an especially year tricky year for crypto taxes. Why is that?
- [08:13]
A
Just because, I mean, a lot of people potentially might be doing this for the very first time. And so not only do they need to calculate their cost basis for this year, but they actually need to calculate their cost basis for all years and recreate their history from the very first time they got into crypto in order to get that number to go on their return in most cases. So I'm sure when you like first got into crypto, you were just experimenting, trying out different platforms and different types of transactions and you weren't really thinking about taxes and like keeping track of all your records. But now if you're doing this for the first time, you need to rebuild all that history to calculate that cost basis to go on there. And you can't really just like throw a random number on there and be like, ah, I think I bought it for about this because now this is going on your tax return. If you're ever audited, you know, you have to have documentation showing how you calculated that number. And if you've been preparing your taxes yourself over the years, maybe you've been using like a crypto tax software. You might have your transaction history in there in your cost basis. But this year there's a huge change as well, besides the 1099 DA when it comes to crypto tax calculations, because the IRS is requiring that everybody move from what's called a universal method of accounting to a wallet by wallet method of accounting. I don't know if you've heard about that yet or Anything. But before, kind of most people, I would say like 99% of people treated their crypto tax calculations as if all of their transactions were on one ledger. So every time, let's say again, you bought Bitcoin, like maybe you bought some really low at the beginning for like $5,000 per bitcoin, and then you bought some for 20,000, then 40, then 100, then back to 70. You have all these different purchases if you were doing, let's say, fifo. So first in, first out, it wouldn't really matter if you were holding your low basis stuff on Trezor, but you sold it on Coinbase. It'll always pull from whatever your oldest overall bitcoin is. But now IRS doesn't let you to doesn't allow you to use basis from crypto that's not held on that specific wallet. So, for example, now if you're holding really low basis on, again, your Trezor, but then you go and sell Bitcoin on Coinbase, you would have to only look at the Bitcoin that's currently on Coinbase when you determine what to sell. So you can't like pull from one giant ledger. It's a bunch of small ledgers, which I feel like will be maybe better in the long run, but it is a big change. And so if you've been using that universal method in the past, you have to do what's called this safe harbor reallocation on January 1, 2025. So when you're doing your taxes this year, before you do any of your calculations, you have to do the safe harbor allocation where you go through and say, I want my high basis stuff on this exchange, I want my low basis stuff on this wallet. This is my holding wallet. I want the low basis there. And you like go through and choose where you want all of your basis to go. And then you calculate your gains and losses after that with this new calculation. So it's a little bit tricky. And a lot of the crypto tax softwares will have a button that allows you to do it. But some of them are more straightforward than others. There's some that a little more complicated that give you lots of errors. So basically everything prior to 2025 has to be perfectly reconciled in order for this to work. So a lot of people are running into issues with it. It's really tricky, unfortunately, and wait just to understand.
- [11:48]
B
So you have all these different balances and all these different wallets and different exchange accounts and everything. Um, and when you're allocating the basis, you don't actually have to move the money. You're just literally like putting stickers on everything like this, as this basis. Oh, okay, got it.
- [12:05]
A
Yeah. So it's just like in your own books, like you're saying, okay, at the end of 2024, you know, I was using this universal method and here's kind of what's left of my basis. I have some bitcoin that was purchased at this price, this price, in this price. And then I'm holding bitcoin here, here and here. Which one do I want to have? The high basis. Which one do I want to have? The low basis. And also you want to be kind of intentional with that because let's say you like had some treasure that you were holding a bunch of old Ethan with really low basis. And then you want to try out some like new decks, for example. And so you need, you need some eth for it. So you connect your treasure and you throw like a thousand dollars on there to try it out. If you did that and you have allocated your low basis to that, all sudden you could have huge capital gains every time you buy like you know, some little amount of coins or you know, let's say you buy, you're just like, you're just messing around on this decks and buying whatever little coins or whatever. If you do that, you'll have huge capital gains where like let's say instead you were holding some Ethan and Metamask that you had just bought like last week, you would want to use the thousand dollars from that one instead because then you would have almost no tick tax impact from like messing around and buying these new tokens on the decks. So going forward you'll want to be more intentional about which wallet you're pulling from to make sure you know, you're not creating these unintentional large capital gains if you have some like long term holdings or something like that.
- [13:30]
B
And so I think I could hypothesize why the IRS did this. So I'm going to throw my little theory out there and you tell me correct. So basically like when people use the universal, universal accounting method, it allows them to always create the biggest, the most tax efficiency for themselves when it comes to their crypto transactions. So they're basically always able to, you know, they, they may not, but they have the ability to always pay the least amount of taxes, basically. Whereas now that it's wallet by wallet, like it's, it's, it reminds me frankly of bitcoin where you can see like a chain of custody for Every coin. So, so it's, it's sort of like that where. But they're making you do it like for taxes. Is that kind of why?
- [14:26]
A
I think that's. Yeah, I think that could definitely be part of it. Like because yeah, before you kind of had the hindsight advantage of at the end of the year you could kind of run hypo, fifo, lifo, you know, all these different types of accounting and across all of your exchanges, kind of see how the year went at the end of the year and be like, oh, was it an up year or down year? You know, am I trying to maximize my losses? Did I buy a house this year? Did I sell some other stocks that I'm trying to offset and I want to take losses? You know, you can kind of just like maximize it for whatever is best for you. Um, but now, yeah, you're, you have less flexibility there. There's still a little bit, but it definitely is less flexibility. And also you have to like, let's say you have some wallet that you just kind of use for, you know. Yeah. Messing around and doing new things and you know, more of an experimental wallet that's pretty much always going to qualify for now, like short term gains and losses where before you could maybe, like, maybe you bought something at. Right. You know, let's say it's bitcoin and right now it's about 90,000. But you also have some bitcoin from last year that was about 90,000. You're like, oh, I'll just pull that one instead so I can get long term gains and losses. But now you don't really have that advantage. So that's one thing. But I think another big reason is that back to the 1099 DA that we were talking about is next year actually the exchanges are going to be required to include your cost basis on it so that you don't have to always supplement it. But this is going to be tricky as well because they still won't have all of that information. So the next year, 2028, there's this big policy discussion going on called CARF where they're trying to get all the exchanges, not only within the US but outside of the US to share their transfer statements and share cost basis information with each other. I don't know if it's going to happen, but it's definitely in the talks. But even if not Coinbase, next year, if you bought anything on Coinbase, they're going to be able to like isolate your basis and everything that was on Coinbase to the sales. And so they know you're not going to in your calculations, like pull from something that you actually bought on Binance or from long ago. It's only going to be Coinbase stuff. So that will make it easier. But it's definitely going to be tricky because if you transfer anything into your Coinbase, you're going to have to like, provide the cost basis upon transfer. You'll notice now, like, you technically can transfer stuff in. It doesn't require you to provide the cost basis before you transfer it in. But if you go to like your taxes tab, it'll have a little warning or whatever saying, we don't have the cost basis for this. So you're supposed to provide it to Coinbase. And if not, they'll just let the IRS know, like, we don't have this cost basis. So the taxpayer will be supplementing it when they prepare their 20, 26 return. So we'll see how that impacts next year and everything and how much information will actually be on there. But technically they're supposed to have the cost basis on there.
- [17:18]
B
Okay. And you know, when you originally mentioned this new wallet by wallet accounting method, you said that you thought it might end up being better in the long run. Why did you say that?
- [17:30]
A
I mean, for people that aren't maybe like full degens and they're just trying to, you know, I'm just trying to report my crypto taxes and be compliant and, you know, they're. Then they don't need to have all this supplemental crypto tax software to help them calculate things and they could just kind of look at their exchange. It'll be like, you know, as if you're training on a brokerage like Fidelity or Vanguard or something like that. It'll just have all your information on there eventually. But if you are still, you know, unlike these traditional brokerages, it's not like you're transferring like your Tesla stock between Fidelity over to Vanguard often, you know, or if at all, it's usually just stays on one and you sell one on one, you buy it on the other and you don't really transfer between the two. So crypto is unique in that as you can easily transfer. So I think this does kind of discourage transferring a little bit. It does discourage people using a lot of wallets and exchanges from as far as a tax perspective goes, because it just gets trickier. Like, sure, you can. A lot of defi stuff, you can't, because none of the defi stuff is subject to this. Obviously everything outside of the U.S. anything on your Own wallet. It's not subject to this. But then in order to calculate this, you kind of almost need like a crypto CPA to help you do it, or you know, more sophisticated crypto tax software that you're able to fully reconcile and provide documentation if you're ever audited. So it may make it easier for people that aren't full degens to do their crypto taxes. But, you know, there's also downsides, of course.
- [19:01]
B
Okay. And then earlier you mentioned some of the accounting strategies that have been applied to crypto, like LIFO, last in, first out, first in, first out, FIFO, HiFO, which is, I think, highest in, first out.
- [19:15]
A
Yeah.
- [19:15]
B
Is that just not applicable at all to crypto anymore, or are there instances where people might still use, you know, those different methods?
- [19:25]
A
It's still applicable. And actually if you go onto like Coinbase and your taxes, it'll say like, which method do you want to choose? And you can actually choose any of those hifo Life of fifo. They might even have a couple others on there. I think those are like the main three they have though. But if you choose one, then that means like, hey, when we look at all of your records and all of your purchases on Coinbase, we're going to use this ordering to sell. And so when you're doing your own records or your own, you know, supplemental trans calculations with the crypto tax software, you'll want to also follow the same accounting method. So if you know for sure, like I always want to do HiFO or I always want to do LiFO, it would be good to go into like your Coinbase or other exchanges and indicate which one you want it to use. So that when you get your 20, 26, 10, 99 DA, it'll match what you were intending and it won't all sudden start pulling all of your, like, say, FIFO and pulling all of your old stuff. That maybe is a lower basis if you hold any of that on the exchange.
- [20:23]
B
And do you recommend that people follow HiFO, highest in, first out, or what do you recommend?
- [20:30]
A
It's hard to say. I mean, highest in, first out will definitely decrease your total tax the most. Or like, at least defer it. Like, in the end you're not avoiding any tax, you're just deferring it to maybe a later date because it would just say like, I'm always going to pull whatever your highest basis is. So a lot of times it'll create a loss if you know, we're at any sort of down or any sort of dip. But also you could do lifo because a lot of times that also is like similar to HiFO. But you know, if there's any sort of ups and downs, it's not always that FIFO would maximize your long term capital gains. But then there's the risk there that if you're holding anything with a really low basis, then that could be a problem. So you kind of want to look at too like, like for example, this is, you know, kind of a random tax tip. But if you only, only like you're basically your only income is crypto, you don't have substantial other income, you basically just rely on crypto. If you're married and you live in the U.S. obviously, if you're listening to this and you only have long term capital gains, you actually can have $131,000 of capital gains in this year and pay 0% tax on it because they have a limit of how much you can, how much long term gains are tax free. And then if you add the standard deduction on that, it's actually $131,000. So if that was your case, like sometimes I talk to like retired people or people that really just kind of live off long term holdings, then you'd want to go for FIFO because those long term gains will be way more beneficial than if maybe you were paying less gains, but they were short term because you'll end up paying tax on those. So that's just again, every situation is kind of unique and niche. So maybe talk to your accountant about it or think about your overall holdings. Like, hey, I'm expecting a big loss from my, you know, my other traditional investments. And so I want to take some crypto gains to offset that or vice versa. So you kind of just want to look at your case. But in general, most people choose to defer their gains. So I would say more like HIFO and LIFO are more popular.
- [22:38]
B
Okay. Yeah. This is why we said at the beginning that none of this is financial advice because clearly your individual situation is what should determine that decision. And yeah, you probably want to talk with a tax expert.
- [22:50]
A
You figure that out.
- [22:52]
B
So one other thing is, you know, you talked about that one year safe harbor for, you know, on January 1, 2025, deciding what the cost basis is for the different wallets. Do you have any particular tips on how people should do that? Like how they should allocate the cost.
- [23:08]
A
Basis use if you, if you have substantial crypto transactions, like if you just bought a few, I'm sure you could do it like on Excel or you know, just even written down. But most people aren't like buying one bitcoin, selling one bitcoin, like you have multiple transactions over multiple years and you know, it gets very messy very quickly. You have trades, all sorts of things. So I would recommend using a crypto tax software and then kind of compare two numbers to make sure you did it right. So one would be your year end holdings at the end of 2024. So 12, 31, 24, they should have a report in there. All crypto tax software have like a year end report and it'll show you what your total cost basis is. So let's say it's a hundred thousand dollars and this is the total of all your cost basis. Then when you do the reallocation, run a new report and see what your cost basis is. And that should also be a hundred thousand dollars. If not something was missed along the way, something didn't get allocated correctly. Um, but I would do that just to make sure that nothing is missed. And then as far as a strategy on how to allocate it, I usually recommend that people put their lowest cost basis on like their wallets that they're not planning on touching for a while. So you know, some sort of treasure ledger, something like that that's more of a long term storage. I would put your low cost basis stuff there because most likely you'll never sell it or if you do it's going to be like a very intentional, like I'm choosing now to sell 5 bitcoin or something like that, you know. And so when you do that you'll be prepared, you'll be ready to pay the taxes. You'll probably set aside part of your sale for the hexes. But you don't want just like random transactions here and there in trades to trigger all these gains. So put your lowest basis stuff on wallets that you're not planning on touching for a long time. Unless again you have these weird exceptions where you're trying to maximize long term gains because crypto is your only source of income. So again this is just general advice, but I would say that and then anything that's your most like active wallet. So the ones that you kind of use the most for trading, I would put your highest cost basis stuff on there so that you can freely go ahead and you know, mess around with stuff and trade freely and try out new protocols and all this stuff. And it won't trigger those big capital gains. Of course there'll be like little ones along the way because crypto's so volatile, the prices are always changing, but it'll be your best chance to decrease your gains and losses in the short term at least.
- [25:37]
B
Okay. And then one other thing is. So once you kind of allocate the different wallets, then what if you like send money from one of the short term ones over to one of the long term ones, then what? The cost basis just transfers, I guess, or.
- [25:56]
A
Yeah, it just transfers. So you'll just have to keep record of that. Like, okay, let's say, yeah, you do it on one of your Trezors, you're moving it into Coinbase. You would have to say, on my Trezor, am I doing hifo, FIFO or lifo? So let's say it's fifo, then you take the oldest one on there, look at the cost basis of that, transfer that into Coinbase, and technically you're supposed to go into Coinbase and say what the basis of that was. But also if you don't, you just get like a warning. And then on your 1099 DA, you have to supplement it when you do your return. But you'll want to keep track of, at least for your own records, even if you don't provide it to Coinbase.
- [26:33]
B
Okay. Yeah. So all of this is, is like somewhat complicated.
- [26:39]
A
I know, I like feel bad for taxpayers. Like, it's complicated almost for me. And I'm like, how is the average, like Joe going to figure this out?
- [26:47]
B
But wait, but like, so next year, will it be simpler like for 2026, because it's like past the transition year.
- [26:55]
A
Or that's the hope. I mean, they're saying, okay, next year it'll have cost basis, so that'll be easy. But it's, I mean, sure, but if you transfer anything in from any sort of wallet that's not on some main exchange, they're not going to have the cost basis. So you still have to supplement it. So basically, if you're ever holding crypto off of exchanges, which is like the majority of us, you're still every year going to have to do some of your own calculations and supplement these 1099 DAs every year.
- [27:26]
B
Okay. All right, so, so it's just a.
- [27:30]
A
Lot more compliance, a lot more paperwork. You have to like match up your transactions and everything. So, yeah, it is some ways easier because it'll have, you'll know the number on there that the IRS has. You can go and hopefully match it up with your own calculations, but the number is not going to be exact because you know every exchange time zone, like everyone's going to use a slightly different valuation for the numbers. But as long as it's in the ballpark, all you should have to do is add the cost basis and then you'll also have to adjust for if you had any spend transactions because it'll only show traits and then sales. So crypto to crypto trades or sales to USD. But the third type of transaction that still results in a capital gain or loss is a spend. So like if you use crypto to buy something. So, you know, some of my clients pay me in crypto for our services. So if they do that, technically that's a taxable transaction result in a gain or loss. But those won't show up on the 1099 DAs because from Coinbase's perspective they're just shown as withdrawals and so they don't know if that was withdrawn to your own wallet, if it was given as a gift, if it was used to buy something. So those ones you also have to manually add in on your tax return as well. Okay, a bit of overwhelmed you. I'm sorry.
- [28:47]
B
No, no, no, not at all, not at all. But yeah, there, there's. Yeah, it gets a little complicated. So there's obviously a lot of software tools that can help people. Do you have specific tips on how crypto people should use crypto tax software or any other software to help them with this?
- [29:10]
A
The main thing is make sure that you so choose the one you want to use and then probably just try and stick with it year to year because every year if you switch then you'll have to recreate all your history again. So choose one. We use mostly Coin tracking for our clients, but we also use Coinly. We use some. There's also like Coin Tracker, there's a bunch of other Awaken, there's other ones, but choose the one that feels best to you. Like, we like Coin tracking because it's has so many features from an accounting accountant side, but from a user side sometimes all those features can be a little overwhelming. So something more like coinly can be easier from the taxpayer perspective. So just look at which one kind of resonates best with you. They're all somewhat similar, none of them are perfect. All of them have flaws, but they'll get you 90% if not further, depending on how difficult your stuff is. But choose the one that you're going to do and then put all of your transaction history in there from when you first got into crypto. So obviously that's a huge task, especially if you're doing it your first year, but you're not only adding your data from this year. So sometimes we work with clients and they're like, okay, here's all my 2025 history. But we're like, okay, we need all your history to recreate all of your transactions. So that's the first step. And a lot of people, especially if you've been in crypto for a while, there might be some exchanges that you no longer have access to. There might be ones that went bankrupt or shut down. And so if that's the case, we kind of have to, like, do our best to rebuild that transaction history as well by looking at, you know, any sort of CSVs or transaction history in your email or looking at the blockchain. Sometimes we can recognize different addresses, like, oh, this is a Poloniex address. We know that one went there. So sometimes we do that. But, yeah, you definitely just want to start by importing everything that you have into one spot and then reconciling it. So you can't just import it and be like, all right, I did it, I'm done, and then just go straight to the tax report. Because it's kind of like garbage in is going to result in garbage out in a way. Like, you have to clean up that data. So if you have anytime where, let's say you transferred two eth out of an exchange, like out of Kraken, and I don't see a deposit of that 2 ETH into your MetaMask or into Coinbase or somewhere else, then that's going to cause an issue in your reconciliation. So did that 2 ETH go to another exchange? Did you use it to buy something? Did you use it to buy an nft? Did you use it to purchase an ico? Like, what did you use that for? You have to go in and, like, manually clean up every unreconciled withdrawal and deposit to make sure that your books tie out and they're reconciled. Otherwise, you'll run into some issues.
- [31:56]
B
So in a moment, we're going to talk about a whole bunch of different specific cases for crypto taxes. But first, a quick word from the sponsors who make this show possible.
- [32:06]
C
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- [33:22]
B
I was just wanting to wrap up sort of this part of the conversation and ask you, are there any other general crypto tax tips that you want to mention that we didn't cover? I know we covered so many, you know, hifo, fifo, lifo, how to do the safe harbor, you know, all kinds of things, the software. But is there anything else that we didn't that's just general that you'd want to mention?
- [33:47]
A
Oh wow. Okay. There's probably, I mean as far as crypto tax tips or keeping track of your transactions and actually doing your crypto taxes, maybe those are slightly different, but I guess I would say too when calculating your crypto taxes, just a tip would be to use APIs when you can. A lot of these crypto tax offers will have APIs that connect directly to the exchange and they're they can't access your your crypto or anything like that. They're just read only to help pull in your transaction history. So that way every time you do a transaction you don't have to like go and download new CSVs and upload them in to update your records. It'll just automatically pull them. So I would say use APIs to grab your crypto transaction data when you can and then also download records on other platforms regularly if they don't have that API. Also this year, I would say it's very important to keep like business, business personal and then like any sort of retirement trust or any sort of other crypto activity separate. It always has been kind of important to do that, but especially this year. Now when you get these 1099 DAs, if you registered for the exchange under your own name, it's going to have your own name on it. And when you get the 1099 DA, or again if you did it under your business and so you Can't. Like, sometimes I'll see people have crypto businesses and then they're like, oh, well, I needed an off ramp. So I just like went through my personal coinbase or something like that. But now it's going to show up on your personal 1099 DA, not your business one. And so then you're going to be liable for it on your personal return and not your business return. And then obviously, extremely important is any sort of retirement activity. This is always very important. But if you have like some sort of crypto ira, a self directed IRA where you've been holding crypto on your retirement, you really, really need to make sure you do. Never mix that with any sort of personal business, any other type of wallet, you keep that completely separate or it can totally discredit your entire retirement structure and vehicle and you'll have to pay taxes on all of it. So just keep everything really clean. Or sometimes people will be like, oh, my buddy wanted to buy this coin and so they sent me some money and then I just bought it for them and then traded around for them and then sent it back. Like, now you're going to be liable for all of those crypto transactions. It's all going to show up on your 1099 DA. So just try and keep things a lot cleaner. Crypto is messy. You know, a lot of times people hold things on behalf of their parents and stuff, but just if you're going to do that, just be mindful of how that's going to impact your taxes. Like, you're going to be responsible for it.
- [36:27]
B
Yeah, yeah. I'm absolutely terrified that I will accidentally send crypto between my personal and business accounts. Like, like an actual thing that I worry about.
- [36:38]
A
But anyway, it's hard to keep track of everything.
- [36:40]
B
Yeah, yeah, yeah. I have taken to labeling all the wallets, like, you know, llc, like, you know, personal. Like, what? I just have a label on it so that I know, like it's this entity and then, yeah, when I do transfers, then I know, like, yeah, you needle.
- [36:58]
A
Yeah.
- [37:00]
B
Okay, so I did want to ask, you know, we're at this moment in time where clearly stablecoins are going mainstream. And, you know, this has even been codified into law here in the US Which I think portends a much bigger wave of stablecoin activity.
- [37:17]
A
So.
- [37:17]
B
So I was wondering, like, is there any specific way that people should be thinking about their crypto taxes when it comes to stablecoins?
- [37:26]
A
Right now, stablecoins are just treated the same as all other cryptocurrency and so technically, all these stablecoin transactions, if they have on, happen on any centralized exchanges, are going to show up on your 1099 DA. And so it'll show a zero cost basis, but, you know, the cost basis is equal to the proceeds. It stays. And so those ones will be easy to supplement and fill in. But yeah, technically they are just reported the same. But the difference is that there isn't a gain and loss on these tables. It's just they're reportable. You technically have to report the gains and losses. You just have to report them on your schedule D and your 8949s, but there shouldn't be a gain and loss on them. But there are a lot of discussions and proposals to try and make stable coins not taxable. Just because it's just kind of redundant. Like, why are we putting these giant numbers on returns that you know, are, are, don't really mean anything? It's just, you know, a transfer of money. Like, imagine if every time you sold anything in US Dollars, you had to report that. Like, that'd be crazy. So people want to treat these as like, more like cash instead of like property, which is the rest of crypto. So right now it is treated like property. But the like, parody act and like the Loomis bill and different things have proposed that these stablecoins are just treated like cash and not reportable on these 1099 DAs or on Schedule D in general. Okay.
- [38:51]
B
Yeah, and we'll talk about the Parity act in a second. So the other thing that was a big trend in 2025 were perps. And I wondered what people should know about taxes on crypto. Perss trading.
- [39:05]
A
Yeah, so PERSS are like, obviously a little bit complicated because, you know, it's all in. It's all in stables usually. And you know, you either win or you lose. And you have all these wins and losses throughout the year. But actually from a tax perspective, like on hyper liquid and stuff, it's not too bad. Like at the end of the year, you receive like a closed P and L that shows all your wins and losses on all your different positions. And most. Well, I mean, definitely not the stuff on hyper liquid, but basically most crypto futures, because they aren't regulated futures, they don't qualify to be 1256 instruments. So normally, again, this is a little complex, but those usually would go on Form 6781, but instead, because they're not regulated, they'll go on schedule D. And so if it's a win, basically, how you'll report it is you'll report a $0 basis and then proceeds equal to whatever your wins were. And then if it's a loss, then you put $0 proceeds and then the full amount is the cost so that it results in a loss. So it'll all, I mean regardless of whether it was regulated, regulated or not, it all flows through to schedule D anyway. So it doesn't really matter. It just where it gets reported is a little bit different. But yeah, I guess just one thing to note for this or I guess just any other type of non US centralized exchange activity is that even though these happen like on a VPN and they're on a Dex and a lot of times, you know, outside the US and not usually visible by the irs, these technically are all still taxable, reportable on your return. So if you use any sort of like hyper liquid Jupiter, any other sort of platform, like make sure you're keeping good records because when you do your taxes, you're going to want to put that into your calculations.
- [40:50]
B
Okay, so another one that was a big trend was prediction markets and it how people should account for their gains and losses when it came to betting on prediction markets.
- [41:05]
A
Okay, so this one's actually interesting. There's obviously a lot of this, I will say with a caveat, like this is how I would treat PERSS and this is how I would treat prediction markets. But like there's no like tax code about this or any like official guidance. That's the majority of the crypto tax world is just we look at other assets that are similar and kind of apply crypto tax treatment that we think applies to that type of asset. So again, take all this with a slight grain of salt and there is some flexibility, but this is how we treat it for the majority of our clients. So for prediction markets there really is kind of like two events happening here. So one is when you deposit crypto into like polymarket for example, you're technically spending that crypto because you're using it to buy like the coin that's on polygon, like whatever their stable coin is or whatever that's in US dollars. So if you send anything you send there is technically a spend of your crypto to buy that. So that's the first taxable event. If you send like a stable coin or something, then obviously it's, there's no gain or loss. But if you send like eth or soul or anything else, you're gonna create a gain or loss there and then. So that's the first thing but then all the activity that happens on there, those are usually what I would consider like gambling wins and losses on each bet. So you, like, place your bet and then either you win or you lose, right? Like you're either making money or losing money. And so in the end of the year, you just will kind of sum that up and look at all of your wins and look at all of your losses, and then they're both reported separately on your tax return. So unfortunately, you can't take the total number and just net it against each other. And if you had a win, you report it on one spot, and if you had a loss, you report on the other spot. You're supposed to take all your wins, report them on one area, all your losses, report them on another. And there's major downsides to this, like gambling losses, people kind of get screwed on because you can only deduct them. You itemize. So if you use schedule A, if you don't take the standard deduction, then you can take your gambling losses. So gambling losses are only deductible on Schedule C. And so if you live in like a state where that has low income tax, or let's say you don't own a home, or you don't have significant charitable contributions, and you don't end up itemizing your losses and you just take the standard deduction, you're still responsible for paying tax on, on all of your gambling winnings, and you can't deduct any of your gambling losses. So that, you know, if you're using polymarket, just keep that in mind. That's technically how the tax code is written. And then to make it even worse, unfortunately, in 2026, the, you know, one big beautiful bill limits gambling losses to now 90% of winning. So let's just say, for example, you have $100,000 of gambling wins, you have a hundred thousand dollars of gambling losses. So really in the end, you like, had break even. But on your return, you actually now, because you're limited to 90%, you can only deduct 90,000 of your losses to offset your gains. So you'll end up paying tax on $10,000 of like phantom gambling income that you actually didn't even have. You technically broke even. And that's all assuming that you actually itemize and are able to take those losses. So this is not great. Obviously, I'm hoping it changes. I don't know why they changed this for 2026, but if you are using these prediction markets, it, it probably is gambling wins and losses. So Just try and keep really good records so that you can get this reported correctly and hopefully you do itemize and so you can take your losses. But yeah, it's, it's not, it's not a great part of the tax code for sure.
- [44:51]
B
And will any of the platforms send forms that people can use for taxes or is that not a thing?
- [45:00]
A
If it's like a US based platform, then yes, technically if you're over a certain number, they actually just increased it to $2,000. If you have more than $2,000 of wins, they'll send you a W2G that has reports your gambling winnings. But most of these, you know, aren't based in the US And I mean, they're trying to do like the polymarket us. I'm not sure if that's gone through yet, but most of most people just use a VPN and stuff and it's outside the US so you probably won't get anything. It's just your own transactions that you'll have to use.
- [45:34]
B
Okay. I think the Poly Market US one is in beta and like being rolled out gradually.
- [45:39]
A
Okay. So maybe that one. Yeah, you would receive like the W2G.
- [45:45]
B
Yeah. And, and maybe more next year when it's more widely used.
- [45:49]
A
Yeah. Okay.
- [45:50]
B
So Another trend in 2026 was Dats. But, but what we can do is we can bucket dats and crypto ETFs together because yeah, they're kind of similar. Yeah, yeah, they're like more obviously the, you know, traditional equities style of crypto investing. So, you know, what do people need to know about reporting their gains and losses on either DATs or crypto ETFs.
- [46:19]
A
Yeah, so these ones are easier, I would say, than the 1099 DAs, because you'll get instead a 1099 B for these because it's, you're buying stock like you're not buying the actual crypto, you're buying stock in these ETFs or the DAT. And so you get a 1099 B which if you've ever used a traditional brokerage, you're probably familiar with. And so it should have your cost basis fully on it, it should have your proceeds fully on it. So it's a lot easier to report. It's actually reported quite similarly to crypto, except for the difference is that because these are technically like stocks and securities, they are subject to wash sale rules. So this means that if you sell something at a loss and then you rebuy it 30 days later, you're not able to take the loss. And that's called like a wash sale, where in crypto this doesn't apply yet. There's been proposals, but as of right now it does not apply. And for all these years so far it hasn't applied. So you can like sell something at a loss and a lot of people do this at the end of the year. It's called like harvesting losses. So you take a look at all of your holdings and let's say so far, year to date, you know, we're in December and you've accrued $50,000 of gains. But you're holding like some random altcoin that you bought months ago and it's has a ten thousand dollar loss. You're like, oh well I'm just gonna sell that. And. But they're like, but even if you're you know, still thinking, I think this altcoin is going to go up one day, I still want to hold it. Okay, just sell it, rebuy it and all of a sudden you'll be able to take that huge loss to offset your gains either. In some cases people can use wash, can use harvest loss harvesting to fully offset their gains. But even if you can't fully offset it, even just like decreasing your gains at the end of the year is great if you use the sloth harvesting, but you can't do this with the DATs or the ETFs or just any sort of like stock. Anything that you buy outside of crypto world too, you could do it, but you would have to wait 30 days before you rebuy it. So you could just dump it if you know you want to get rid of it and you're like, ah, I don't need this anymore anyways, sell it and take the loss. But if you wanted to rebuy it, you'd have to wait 30 days.
- [48:22]
B
Okay, okay. So the other thing that happened in 2025 was the 10, 10 liquidations. You know, this may not be any different from the other losses, but I just wanted to ask about that. Like if you thought that there just because it was such a big event that I think affected a lot of people. I don't know if you have any particular, you know, taxes or information that they should know for anybody who either suffered gains or losses, I guess on that day. Any taxes?
- [48:54]
A
Yeah, if you did have a loss, like I would definitely report this because this is a reportable loss, this is a capital loss. Like basically if you were collateralized on anything, you were most likely liquidated. And these liquidations on leverage Positions just like we were describing on like the perps and stuff, these are treated as capital losses. So basically if you were collateralized on anything, you're most likely liquidated. And just like similar to perps where you can report these, you know, any sort of losses there as a capital loss, these ones also can be reported as a capital loss. And these losses can offset gains from crypto, it can offset gains from even stock, other investments like gold rentals, rental real estate, anything like that. So you definitely want to report these if you did have it, because it'll help decrease your overall tax bill.
- [49:45]
B
Okay, so something else that was a new trend that probably isn't being widely used, but definitely was being used more is that people are trading using AI agents and, and I wondered if there's anything they should know about how that should be treated on their taxes.
- [50:03]
A
Yeah, these ones are a little tricky because they're all just so like different and nuanced in how they actually worked. But basically I would just say like the overall high level thing to know about these is just because like a bot did it doesn't mean that you're not still responsible for it. So if you like control it, if you benefit from it, if it was like doing stuff with your crypto, the tax law like looks at you and you're the one that's responsible for those gains and losses in the end or income or any other side of sort of activity that came from it. Sometimes people like will pay for these agents and you know there's fees involved with them. So if that's the case, in most cases they actually aren't deductible in general. I guess I would say something to keep in mind is that most crypto expenses, like let's say you travel to a conference or you like pay for some sort of subscription or you're part of like an investment club that you have to pay fees for. All of those in general aren't deductible unless you qualify for what's called tax trader status. And this is like really high volume traders. These are people that have a lot invested. It's like their main source of income. It's where they spend the majority of their time. If you do that, you can potentially qualify for tax trader status which allows you to then deduct any sort of expenses like computers, home, office, any of these trading expenses, platform fees, stuff like that. You can all deduct it. But again this is only to like a select group of people that qualify for that tax trader status. So if you do think you qualify for would be worth looking into because obviously sometimes those expenses can add up.
- [51:42]
B
And so let's see. So airdrops, they weren't necessarily a bigger trend this past year than they have been. But between Those and then ICOs, which definitely became more of a trend last year, again, they returned. What are the things people should know about airdrops and ICOs?
- [52:04]
A
I guess these are two different things. But for airdrops, those ones are easier. But right now, the way the law is written is if you receive an airdrop, you have to include whatever the value of the airdrop was at the time you received it as income on your tax return. And the like caveat there, the wording behind it is if you have to report as income when you have dominion and control so that you could sell, trade, spend or otherwise dispose of it. So that basically means if you receive some airdrop but there's like no market for it, there's nothing you can do, it's just like some scam airdrop. Probably one, it doesn't have value, but two, there's no income to include there because there's nothing. You can't get rid of it or sell it if you want to. But if you receive any sort of like significant airdrop where there is value to it, even if you don't sell it and you're just like holding it, whatever the value was on the day you received it and there was like a market for it, you are required to include that as income on your tax return. So that's just one thing to keep in mind for airdrops is as you earn those potentially set aside tax if it's any sort of signif money for tax, if it's any sort of significant airdrop. But yeah, that's one thing to keep in mind there. That's how they're taxed. Now there are obviously talks to try and change that so that it's only recognized as income like when you actually sell it. But for now that's how it is. And then the other one was AEOS. Yeah. So the crazy like are we back in 2018 or in 20? So with ICOs, how those are treated generally is when you send your crypto to buy the ico, that's when I treat it as the taxable event. So it would be treated as like a spend for the new coin that you're buying. And so even if you don't receive the new coin right away, I actually start the cost basis and holding period at that time when you like, let's say you send ETH to buy the ico. I would treat it as a spend of ETH in the time you sent it. So let's say you sent it in November 1st. On November 1st, you have a taxable event, but let's say you don't receive it until, like, the next year in, like, June. The ICO coin, I would still have the cost basis and the holding period start as of November, because that's when you sent it, and that's when you dispose of your assets, so that's when the new one should start again. There's not, like, specific guidance on this, but that's just how I've treated it over the years and seems to work. But obviously There are some ICOs as well, where you send the coins and then you never end up getting it. Like, it might be years. And that happened a lot in 2018. You know, the project fails and you don't end up getting your coin. So if that's the case, when that happens, whatever you had originally sent, I treat that as a worthless investment loss. So it ends up showing up as a capital loss on your return, where basically we just treat it as like a sale for $0. So you got nothing in return, and this is how much you spent to buy that. So that's, I guess, maybe things to keep in mind if you are involved in ICOs.
- [55:15]
B
Okay, so yet another big trend for 2025 was privacy coins. And no matter how private people think they are, the government also wants to know about those transactions. So what do people need to be reporting and what kind of, like, information can they get, you know, whether it's from an exchange or elsewhere, to back that up? And, like, is that something that crypto tax software can also follow or.
- [55:42]
A
No, if you do it on an exchange, Usually, yeah, the APIs and stuff will pull it through. But if you do it, like, on your own wallets and stuff, that's where it becomes more complicated to get that transaction history. So, like, everything you know, even if it's not on the 1099 DA, even if you don't get a tax form for it, it is still taxable, it's still reportable, even if it doesn't even happen in the U.S. honestly, it's all, if you're subject to U.S. tax, it doesn't matter where it happens in the world, on what platform or anything. It's still taxable, it's still reportable. And what we found with the privacy coins is that these get tricky because if you were audited, the IRS and the IRS sees that, like, you were using these privacy coins, like Monero or something, then there's just a higher burden of proof on taxpayers to show their record keeping to prove what they bought these for, what their cost basis was. Because if you don't have the records and then you're audited, you know, if you don't have any proof showing this is what I actually bought, like my Monero for or whatever, then the default is to just treat it as a $0 basis, which obviously is a big problem. You really substantially overpay on your gains. So a lot of people I'm sure, are like, kind of rolling their eyes and they use privacy coins because they're like, yeah, I'm doing this because I'm not trying to report my crypto taxes. Okay, you know, I understand that as well. But one day, potentially, if the IRS catches up to you and you're ever audited and they can see, like, you know, this was used to purchase the narrow, and then whatever happened to it at that point, we don't really know. That's where it can potentially cause problems. So. So just try and keep good records. Even if you are not planning on showing them to the irs, I would still recommend having good records for yourself.
- [57:24]
B
And do the different tax software programs, Are they able to. To follow privacy coin transactions or.
- [57:31]
A
Or no, it depends what chain and then also what software. But yeah, I would say for most of our clients, we have been able to, like, keep record of those as. As we work with the taxpayer. Like, I'm sure if we were just doing it ourselves without having their access to their info and stuff, it would be trickier. But if they're able to provide, like, exports from their wallets or they have good records, it's kind of a mix, I would say. But yeah, we've been able to in most cases.
- [58:00]
B
Okay. Yeah. And I suppose it depends on whether people are using shielded transactions or not in terms of.
- [58:06]
A
That also makes it harder. Yeah, yeah.
- [58:10]
B
Okay. So the next thing is not necessarily something that was any bigger in 2025 than any other year, but there's a whole host of different types of transactions that people can do in defi. They can, you know, use a dex, or they could provide, you know, liquidity on a dex. They can do defi borrowing and lending. They can yield farm. There's a lot, you know, I'm going to. I'll do mining and staking as a separate question, but just what would you recommend for all these different types of things that people can do in Defi that they either keep track of or that they're aware of for their taxes.
- [58:49]
A
Yeah, I would say if you're a heavy defi user, some of these crypto tax softwares can support some of the types of transactions. But I would say, not trying to plug too hard, but I would definitely recommend using a crypto tax software or a crypto tax accountant if you have heavy defi use. Because it just gets so complicated. The records are tricky and just keeping track of everything and like looking through chain. Like, some chains are really good, some are not. And like, luckily my team, they're like, most of my team is full dgen and so they're very, you know, familiar with doing this themselves. So when they look at the records, like they know what they're looking at and they can totally help you, like reconcile your transactions and get the correct tax treatment on them. But yeah, the defi stuff is obviously tricky and there's not like very specific guidance on how to treat this. So we treat them one way, you know, but it gets messy. And again, just note, all of this is taxable and reportable, but it's not as simple as, yeah, buy Bitcoin for this price, sell it for that. You know, easy to calculate the gain. This is complicated stuff. Sometimes you're getting liquidated, sometimes you're having income, sometimes you're buying like these LP tokens. Like, is that taxable? You're wrapping it. Is it taxable? Like, you know, there's so many questions and things that happen along the way to get to the kind of the final transaction or if you're doing like liquidity pools and you're putting in the two coins and then it comes out in a different ratio on the way out, like, how is that taxed? And so it's complicated. And if you have a significant amount of activity or significant amount invested, it's. It'll definitely be worth it to pay for a crypto tax accountant, I think.
- [60:36]
B
Okay, so then, as I mentioned before, I did also want to ask about mining and staking. What is it that people should know for their taxes?
- [60:46]
A
So mining and staking have kind of been treated the same way ever since. Like, the original tax guidance we have on crypto was actually from 2014. It was a notice in 2014 that was. It talked about mining in there and it said that you're supposed to include your mining rewards as income on the day you receive them. So whenever, let's say you're mining, you know, a little bit each day and you're receiving all These small deposits, every time you receive a small deposit, that's income equal to whatever the value. Let's say you're mining bitcoin on that day. What the value of bitcoin was and how much you received. That's income. And so if you're mining, you, I would try and have one wallet that you keep all of your mining rewards in so that you can just link that up to a crypto tax software. It'll pull in what the value of those mining like rewards are for you. You don't have to like automatically or manually calculate these. It'll do it for you automatically. And those are all subject to income. And then mining also, usually you have like expenses associated with it, right? Like you have the miners, you have utilities, Maybe you're like renting some sort of place to mine, or maybe you're doing like cloud mining or you're paying for mining fees or something like that. All of those are deductible against your mining income. And that goes usually on schedule C. If you're just doing this on a personal return or if you're like more sophisticated and have like a business set up or an LLC or an S Corp or something like that, then it could potentially have its own return. But even if you don't have that big sophisticated entity set up or anything like that, you can still deduct your expenses on schedule C. So that's how mining is taxed. And then staking similar in that as you receive staking rewards, those are all subject to income tax. Again, the fair market value on the day you receive them is income. But these ones usually don't have the expenses like mining do associated with it. So it goes on schedule one. Um, there's a line on there, schedule one, line 8V. And this is for all like kind of miscellaneous crypto income. So that's where we put that one. And also just a thing to note is those are also subject to what's called the net investment income tax. So if you're single and make more than $200,000 or married and make more than $250,000, there's an extra 3.8% tax on any sort of investment income. And because this is considered investment income, it would be subject to that 3.8% tax. So that's just something to keep in mind if you're in those income levels. But mining and staking could potentially change. There was a Jarrett. If you've heard about the Jarrett case, there's this guy that was fighting to have his staking Rewards included as income when they're sold instead of when you receive them. Because obviously crypto is so volatile and there could be a chance, you know, you're accumulating all these staking rewards, and then all sudden taxes come and you have to, like, unstake part of it just to even pay your taxes. And so you're like, decreasing your, like, goose egg, basically, and the amount of earning potential just to pay taxes along the way. Even though you haven't, like, recognized any value, you're just accumulating these rewards, which technically could go to zero tomorrow, potentially. Right. You know, you never know. And so he was fighting to say, I think we should have crypto, or staking particularly is what he was fighting for was staking to not be included as income until sold. And so again, the parity act we were referring to and the Loomis bill that was proposed last year, these both are kind of fighting for instead to have mining and staking rewards not included in your income until they're sold. So like, when you actually recognize the value from them, because right now they're just accumulating. They're a number on the screen. They might be worth that one day, but they might be worth nothing. So instead, let's wait to include as income when you actually recognize that value. So we'll see if that ends up going through.
- [64:48]
B
Yeah, it reminds me.
- [64:49]
A
Talks, but we'll see.
- [64:53]
B
Yeah, it reminds me of the, the thing in, I think it's like California and parts of Europe where they want to tax unrealized gains. And the people who were like, yeah, well, I don't have, like, it's on paper, but I don't have that money, so how can I pay the taxes on it?
- [65:14]
A
Oh, my gosh, that would be a nightmare. Yeah. Okay.
- [65:18]
B
So, you know, like, most years, there were a lot of things that went wrong in crypto as well. So unfortunately, this is not, you know, sorry that I was laughing about it, but it's not something that we want to happen, but it does happen. So for victims of either crypto scams or hacks or I don't know if we had any bankrupt exchanges, but, you know, even from previous years, how should those people account for, for, you know, those types of incidents on their taxes?
- [65:52]
A
Yeah, so if you. Yeah, there was thankfully no like, notable bankrupt exchanges. There was like the Bybit hack, but all the users on buyback were. Were fine. You know, they didn't lose their holdings and stuff. So that really, I would say when we're thinking about bankrupt exchanges, I Think more to like kind of the FTX era when we lost. You know, a lot of exchanges are bankrupt. Obviously there's like now gox and everything from a long time ago. But one thing we're currently dealing with right now is the Celsius bankruptcy still, because they're still sending out distributions. Actually, the next distribution is expected to come in February, so quite soon here. And this distribution is the biggest distribution that the creditors have seen since the original one two years ago in 2024. And so this is one that if you have like experienced huge losses on this, even despite getting the distributions, because, I mean, the losses, it's crazy. Like the prices that they determined your claim on were based on like mid 2022 prices. So like when the market was at like an extremely low point and then now the distributions are being paid out in current prices. So the value is like five to six times the 2022 price. But they're saying, you know, we're making you whole. And so if you are a Celsius creditor, you know how tough this has been and that you do have big losses. So I would just say if you haven't yet, I would really recommend taking these losses. It's very complicated, the calculation, because the distributions have been paid out, not in kind to what you originally were holding. So it's been paid out in eth, Bitcoin and stock. The latest distributions have been in Bitcoin and then future distributions will be in stables. And so it creates a really big tax headache. But there are losses available to you. And this actually something we've helped a lot of people with probably over a thousand clients with the Celsius distribution. So if you lost coins on Celsius or any other like Voyager or other exchanges that went down around that time that have maybe set distributions, maybe haven't reach out to us and we'll help you because you can get those losses on your return to help decrease your overall tax bill, make some sort of silver lining of a really crappy situation. But yeah, that's kind of like how bankrupt exchanges are looked at. And then I have seen probably as well like an unfortunate increase in crypto hacks and scams and like social engineering scams in 2025, we've had even clients that have been with us for years and you know, are quite familiar with the crypto market. All of a sudden getting, losing like thousands and thousands of dollars from these scams. And so I have seen, you know, especially two of the, like, romance scams. We've seen a lot of those. So if you were subject to any sort of, like, hack, scam, anything like that in 2025, also for a lot of you, there is some sort of, like, tax relief. It is a tricky area of tax because in 2018, they actually got rid of the ability to deduct personal thefts, losses, anything like that on your return. You used to be able to take, like, thefts and losses on schedule A, but they got rid of that in 2018. But there is an exception which says if you were holding the asset with the intent to make a profit, which in most cases, like, for crypto, that does apply to you, you can take this as a theft loss, actually, even without the 2018 change. And so if you've lost crypto, I'm really, really sorry, that sucks. But let's try and, like, get some justice on it, at least in your tax return. By taking this at a loss, you do have to be able to show that profit motive. But usually, you know, by creating some sort of case, you know, we can go through all of your transaction history and all of your records and show what was actually lost. You can show, like, the. Maybe if there was any sort of, like, dialogue between you and someone else that scammed you, you know, keep record of all of that. If you have, like, a police report, FBI report, anything like that, it'll also help build the case. So, yeah, this has been something that we've been helping people with this year, unfortunately.
- [70:12]
B
Okay, yeah, that's too bad. Yeah, this whole pig butchering thing has been crazy, but at least I think they caught, like, one of the main kingpins. So, okay, so we've talked about this parity act a few times, but we haven't really dived into the details. So there were two House representatives that proposed this Digital Asset Parity act, which will address some of the major tax issues for crypto. So explain what it's proposing.
- [70:39]
A
So a lot of the things that are in this parity act have been proposed, you know, on previous bills or, you know, have been in discussion in the crypto tax space for a while. But I think the intention of it is to try and make crypto tax reporting easier and a little bit cleaner. But the main points, at least in it right now, are that there would be no tax on stables, which we talked about. So stable coins just won't be included on the 1099 DA. You don't have to report them as, you know, gains and losses that don't really have a gain or loss. They just don't have to be included on schedule D or anything like that. So that would be just nice, would help decrease reporting and make it a little simple. They're also like we talked about, trying to make it so that staking and mining are not reportable until sold. Or I think the actual latest one that they had in there was, that is sold or five years. So if you've still been holding those staking rewards for five years, at that point you would have to include as income. But if you sell it before then you would just include it at that point. But you don't have to include as income as you receive it for both. And they actually did it for both. Staking and mining is in the proposal. So we'll see. But that would be nice, especially for stakers and miners. And then another one is a de minimis exception. So this is that if you use crypto, like right now, to use it as like, more like a currency. So if you use crypto to again, pay for my services, use it to buy anything, food, you know, vacation, anything you want to buy with crypto, you have to then pay a small gain or loss on whether that crypto had gone up or down in value from when you originally bought it to when you spent it. So this makes using crypto as a currency, like, extremely difficult because you're creating all of these small gains and losses along the way. And if you like want to use this regularly, you know you're creating a tax headache for yourself. So they're saying in this parody act that there would be a, I think it was $200 de minimis exception. So if the, if you bought something with crypto and it was less than a $200 gain on it, so you know, it wasn't a very small significant purchase, then you just don't even have to worry about reporting those. You can use crypto as like a currency and not have to report all these small gains and losses. So that would be nice. But I think there's also going to be a cap on it. And so really only works if you do like a small amount of transactions here and there to buy things. But it's not like all sudden you can take all of your old crypto and start paying all of your bills with it and then avoid all your capital gains. It's only for like small things, but it would be at least nice for a few. Another one is, as of right now, charitable contributions with crypto are a little bit tricky because if you contribute more than $2,000 of crypto to a charity, you have to get a qualified appraisal to veri, like some qualified appraiser to verify that the bitcoin, you said, the eth, whatever you sent, was actually worth that amount on that day in order to take it as a deduction on your tax return. And charitable contributions are an amazing way to save on your taxes because you can take crypto that has a cost base. Like you can take bitcoin that you bought for $1,000 per bitcoin, really old bitcoin, you can donate it today and like, take a $90,000 deduction on your tax return and not have to pay any sort of tax between the thousand and the ninety thousand. So if you're making charitable contributions already or planning on making any significant charitable contributions, do not make them in cash. If you hold crypto, make them in crypto. There is, you know, that one extra bit of reporting where you'd have to get the qualified appraisal. But if you need help with that, just let us know. It's not too bad. It's just like an extra form you have to fill out. But the parity act is making it so that you don't have to do that, because right now you can also donate stocks similarly to charities and get those deductions. And because stock values are easily seen on, like, stock markets and stock exchanges, you don't have to get that qualified appraisal. And so people are arguing, like, crypto, though, it's volatile. Like, you can clearly see the prices each day if you look on any sort of like, you know, any. Anything that tracks crypto prices. And so why do they need qualified appraisals for that? So they're trying to make it so that you do not need qualified appraisals for crypto. So we'll see. And then the last, like, big thing in the parody act, which is like a downside for crypto people, but in order to get these acts and different proposals put through, they kind of have to show, okay, if we're going to save tax on, like, the mining and staking and allow people to take more contribution, charitable contributions and stuff like that, they have to also show that there's a way that they can make, like, tax dollars increase. It has to, like, be a neutral, from what I understand. So now they're saying that crypto would be subject to wash sales, um, which would not be great. I would not love that. But it's in there, so we'll see. But if it does, again, if you wouldn't be able to do that, like, loss Harvesting at the end of the year.
- [75:53]
B
Okay, wow. All right, so this has been a monster episode. But there's one last question, which is now that it's the beginning of 2026, what do you recommend people do this year for either upcoming changes to how crypto will be treated tax wise next year, or not next year, but you know, for 2026 or just general tips for making their 2026 taxes easier?
- [76:19]
A
Yeah, I would say if you're trying to make your life easier, it will be easier when it comes to tax time if you have fewer wallets and exchanges and do fewer transfers between them. Because otherwise, like we said, all of those transfers have to be tracked manually entered into exchanges and you have to like reconcile it on your tax return. So the less you do it, the better. It doesn't mean you shouldn't do it just for taxes. Like, you know, don't use taxes as your main motivator for your trading strategy. But if you can't avoid it, it'll make it easier when you come to do your taxes. And we talked about before, like keep long term storage in one wallet and like don't transfer out of it unless you're intentionally wanting to sell your long term holdings. But you could do that. Another thing actually that would make make it slightly easier when it comes to the 1099 days is only use centralized exchanges for stables. Because if your 1099da only has stables on it, like you only use it as your on and off ramp for stables and then everything else you buy, like on sort of like Dexs Instead, then your 1099 D is really simple. All you have to do is mass match the cost basis and the proceeds with the stables. But everything else would still be reportable elsewhere. But it would make your 1099 DA more simple. I would say. Yeah, again, I think I talked about this earlier, but if you like want to do more like experimental activity or mess around on exchanges or have a lot of high volume trades, try and use newer crypto for that and avoid anything with a low basis so that you don't create big gains and losses on that and then keep, you know, this one's a hard one to recommend because everyone kind of has a different approach. But I would say if throughout the year you end up having any sort of significant gain, try and set aside cash throughout the year. Because just unfortunately throughout the years I've seen times like even all the way back to 2017, people made a lot of money in crypto and then they went to pay their taxes in 2018, and all of their crypto was worth significantly less. So they had to sell like a giant portion just to even pay their taxes, which is, you know, devastating. And so I would say potentially set aside cash throughout the year if you have significant gains. The downside to this is obviously you're taking money out of the market sitting there to pay tax, but just at least keep it in mind so you have a plan to pay your taxes if you need, if you have any of those significant gains. And then I would also say, like, with all of this 1099 DA and, and even on the tax return, you know, there is that question now on the return that's been there for a few years that says, like, did you at any time basically, like touch cryptocurrency? It's obviously longer than that. But if you haven't been reporting your crypto in the past, I would try and make this your year to, like, get compliant. I have a lot of people come to me that are, like, embarrassed and like, oh, I got this tax notice. Like, lately there's been a lot of those six months, 173 and 6174 letters. So if you've received those, the IRS knows that you have crypto. You're going to start getting these 10, 99 days. And maybe you're like, shoot, I haven't reported anything in the past, so just don't be embarrassed. Like, we do as many amended returns as we do current year returns. Like, we help a lot of people clean up prior years. So just know, like, it's not too late, it's good time to clean up. The IRS is really increasing their crypto compliance efforts, their audits, their letters. So it's best to get ahead of it now instead of have them come to you. And just note too, like, if you have any sort of complex situation, don't hesitate to reach out again. We've seen it all pretty much. And we also have the former, actually the former head of crypto at the irs, Trish Turner. She's our current tax director. And so she has like, a great insight to what's on the other side of the curtain and what, like, she's the one that wrote a lot of these laws that are now coming into play. And so she can help you, like, navigate these complex tax situations because she's been on the inside. She has great insight for us. And so if you need help, just don't hesitate to reach out. Our team is really here to support you and we've, we've worked with many clients, so your situation, I'm sure we'll be able to handle it.
- [80:47]
B
All right. Well, Laura, this has been an amazingly comprehensive show. Thank you so much for sharing the wealth of information you have about crypto taxes. I really appreciated it. Thanks so much for coming on Unchained.
- [81:01]
A
Yeah, thanks for having me. Shout out to anybody that made it to this long. Like, obviously, I love taxes, but I know everyone else doesn't. So, um, if you've stuck with us this long, shout out to you. Thank you.
- [81:12]
B
Yeah, we'll put good timestamps in the show notes. Everybody can go to the section that's relevant to their good crypto activity.
- [81:21]
A
Okay. Well, yeah, and again, if you'd like to work with us, this obviously is like our busiest time. We're in tax season, but we still have capacity to help. So if you mention again that you came from this episode, we'll give you a hundred dollars off if you want to schedule a call or just reach out. We're happy to help with any sort of crypto tax needs that you have. And even if you feel like you need more time, like, obviously this is a lot, especially if you're doing it for your first year, you can also file an extension which will give you six more months and allow you just to have that time to clean this up to work with us if you need. So again, we can help you with an extension if you need that as well.
- [82:00]
B
Okay. So for those of you who are interested in getting the $100 off any tax services at Crypto Tax Girl, you can go to cryptotexgirl.com Unchained. And again, this company has been around since2017, and they can do your returns. They also do tax reports, reviews, other services. And again, you can get the $100 off by going to cryptotexgirl.com Unchained.