This piece is an insight by Jim Calvin, a tax expert at Deloitte on some of the tax tricks that professionals in financial firms use to maximize tax returns. He has been in the crypto industry since 2014. He is also a professional at Deloitte.
But before we dive in right into the main issue, Jim Calvin gives background on his crypto interest. He says it emerged while he was based in Asia in 2014. Clients kept inquiring about bitcoin. It wasn’t individual customers alone but institutions in Bangkok, Hong Kong, and Singapore.
Speaking in an interview with CCN, Calvin says that he had to study more about cryptocurrencies and whether and how they applied the AML/KYC protocols. Subsequently, most of his work ended up being related to crypto trading, investing and exchanges.
Nothing much has changed for him. Today, most of what he handles is bitcoin related. What has changed is more inquiries about splits to bitcoin and bitcoin cash. Clients also want to know the liabilities that would spring when you receive something free of charge.
However, according to the crypto tax expert, the toughest topic is on exchange to exchange transfer. Although the node40 tech assists the user in the automation of the process and generation of an accurate report for tax compilation. Still, it leaves more to be wanted, and that why crypto experts and accounting firms like Deloitte may be the best option for you.
Tip 1: Highest Cost Basis
Calvin says that using the highest cost basis is one of the topmost strategies he uses for crypto tax accounting.
Have a standing instruction, communicate to your CPA that anything you sell should be on the highest cost basis. For instance, you could sell it at $5000 but base it on coins you bought at the highest price of say, $20,000.
By selling your most costly asset, you minimize your gains and maximize your losses. The rule has been applied to stocks and bonds and works all the same. It has worked on crypto on numerous occasions. For people who buy at all-time highs, you won’t be out of luck, given the next trick.
Tip 2: Wash Sales Are Legal
Whilst you can’t claim losses after re-buying stock you sold earlier, in crypto, you can claim loss after re-purchase. Say you bought it at $8,000 and now you have sold it at $4,000. You could claim a loss. Provided there is some daylight between the trades. Say, one hour.
It keeps your holding and files the losses. These losses when carried forward can be used to offset gains. They, however, can’t be carried back.
Tip 3: Sometimes Airdrops And Forks Can Be Helpful
Airdrops and chainsplits are not taxable, at least until you claim them. The problem is, they would then be taxed as ordinary income because of the fact that there is no sale or exchange of any asset to get them.
Calvin advises that you claim your chainsplits and airdrop when they appreciate. The amount you make on an increase offsets ordinary income tax. For instance, if you claim your BTC at $200 and sell it when it hits $2000, you get to pay ordinary income tax at $200 and capital gain at $1800.
Tip 4: Lost Coin Is Theft Loss
Calvin’s last tip delves on whether crypto funds are deductible or not. The money ball is in proving whether the lost coin was a personal asset or not. If it was in an exchange, it’s not likely a personal asset. Then it should be deductible if you can prove it was stolen.
The issue has been in contention and has met real tests of usability in court, matter of fact, most of the four tips have.