How to Prepare for Tax Season 2022 and Potential Crypto Regulation

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It was a banner year for the cryptocurrency market, which topped $ 3 trillion in November. Major cryptocurrencies like bitcoin and ether have also hit all-time highs.

This widespread adoption has led lawmakers to focus more on the regulation of cryptocurrencies. Throughout the year, they debated the framework on investor protections, taxes and more. For this reason, new regulations are likely to come.

If you’ve been one of the many exchanges for cryptocurrency or other digital assets over the past year, here are three things to do now to prepare, starting with how to prepare for the next tax season.

1. Get organized

Cryptocurrency investors must report their taxable transactions involving bitcoin, ethers, dogecoins, and other digital coins to the federal government on their 2021 tax returns.

If that’s you, start by calculating your profit or loss. While it can be difficult if you have multiple wallets and use different exchanges, as is common, it’s all up to you to sort it out yourself. The Internal Revenue Service (IRS) requires investors to keep records “sufficient to establish positions taken on tax returns,” according to its website.

It is crucial to prioritize good record keeping. Although it depends on your personal factors, it is best to keep your cryptocurrency transaction history for at least three years, says Shehan Chandrasekera, Certified Public Accountant and Head of Tax Strategy at Cryptocurrency Portfolio Tracker and Calculator. CoinTracker tax.

2. Start monitoring

In the future, you may also want to use a reputable portfolio and cryptocurrency management software tool that tracks trades, calculates gains and losses, and stores evidence.

It’s a way for investors to “accurately build their tax profile and prove to the IRS their actual tax liability,” Chandrasekera told CNBC Make It.

Additionally, it can be helpful to work with a CPA who can walk you through the reporting process and help you plan for the future, especially with the growing possibility of tighter cryptocurrency regulations.

3. Be aware of upcoming regulations

Over the past year, the focus has been on the regulation of cryptocurrencies. While it is impossible to predict what will be put in place, it is good to be aware of what is being discussed by lawmakers.

In the Build Back Better Act, policymakers propose to impose “blank sale” rules on commodities, currencies and digital assets in 2022. If passed, it would prevent cryptocurrency investors from immediately buy back the same asset after selling at a loss.

And the bipartisan infrastructure bill enacted in November includes tax reporting provisions that apply to digital assets such as cryptocurrency and non-fungible tokens, or NFTs, and will require cryptocurrency brokers to report cryptocurrency gains in a 1099 type form.

However, the provisions will not come into effect until January 2024 and, in the meantime, cryptocurrency industry lobbyists plan to push for amendments and stand-alone bills to adjust them.

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