Subnostr

Okay, we've got 10 days left per the IRS

to qualify for their "SAFE HARBOR" from Bitcoin taxes.

There's a lot of confusion on exactly what we should do, with even CPAs and Bitcoin tax experts contradicting each other and making assumptions.

(it's not their fault. the guidance is clearly confusing and lacking full detail, which they admit)

But here's my best attempt at what I think is helpful based on watching 3 separate videos, reading the IRS "Revenue Procedure," and then trying to interpret the spirit of the law (links below this post so you can DYOR).

This can make a huge difference in your gains calculation and prevent extra work in the future.

The spirit of this law is because crypto tax software has allowed us to choose a global accounting method that treats ALL wallets and accounts as one big bucket.

The IRS hates this. It allows us to sort of game the gains, and it isn't consistent with how the exchanges or brokers report.

The IRS wants it to be more like TradFi exchanges (Fidelity, Vanguard) where whatever you buy/sell on each platform gets its own separate statement. And that's what you report on.

The IRS wants our records to match those of exchanges. Not our own curated one that we can currently game with most software by changing the method from universal to method or FIFO to HIFO.

So admittedly, the IRS is saying, look, we get it. It's been confusing and we haven't been entirely clear. So you can elect to enter a "safe harbor" forgiving your past sins by agreeing to make a few fixes.

1. For the year 2025 and moving forward, the IRS wants all exchanges and taxpayers to use a FIFO, first-in-first-out accounting system. No more LIFO or HIFO. Buy-Bye!

2. And all exchanges need to report using FIFO on a brand new form, a 1099- DA (digital assets). In the past you may have gotten a 1099-B or 1099-MISC. It wasn't clear and brokers were guessing which forms to use. And many didn't even send any.

3. Each self-custody wallet needs to have it's own "statement" similar to the 1099-DA. Not literally, but meaning each is it's own account.

So wether you with software or your CPA does it, you need to have separate ledgers for every wallet so you can properly account for the basis when those coins move from wallet to wallet.

4. The call to action would be to move all your Bitcoin off of exchanges (should do anyway) and into self-custody, and hopefully consolidate into as few wallets as possible (ideally one).

This will help solve the FIFO requirement if you really want to sell your highest priced Bitcoin (less gains) rather than your lowest priced one (higher gains).

Starting January 1st, whatever account/wallet you have with Bitcoin, if you need to spend/sell, accounting for the first-in-first-out may literally be your highest in because the new wallet consolidated all of the coins at the same time.

This wipes the slate clean at the exchanges.

We all understand UTXO consolidation. I find this similar, but sort of an unused-confusing-past-basis consolidation that gives us all a mulligan to have clean records moving forward.

Now, I'm not personally fully following this. Almost all my Bitcoin is in deep cold collaborative storage that has too much friction for me to move without paperwork, video verification, booking flights to find keys, etc. (that's the point). Because THAT Bitcoin will never move!

But for all the places like Strike, CashApp, Robinhood, BlueWallet, Aqua, etc., etc., I am consolidating everything into one NEW wallet.

After 1/1/2025 you can move and do whatever you want. But now you have a starting point to account for everything.

There are links below on how to download pre-printed forms, sign them and just keep them. Email it to yourself or maybe notarize it, if you want, so that if you ever are audited, you prove that you read the Rev Procedure and agree to the safe harbor.

By the way, if all of this is confusing and your records are super clear and clean, you can ignore this. Kudos to you having kept life simple with Bitcoin only and bought on only one exchange.

Because I love to try out and support new companies and products, I have bought Bitcoin all over the place. And yeah, tracking the basis as those sats move from this place to that place gets tedious.

I've been here since 2017 and my reporting has been wonky with exchanges going out of business, some reporting incorrectly, using different methods, and many sending the IRS incorrect info.

Even today, if you send Bitcoin to Coinbase and then back to your own wallet, Coinbase doesn't know your cost basis since you didn't buy it there. So they report $0. hello! I didn't buy Bitcoin for $0! This produces a huge gain on an official report that they send to the IRS!

This is why the Safe Harbor is a reset.

DYOR. Here are some links👇