How do we plan for the unknown…?
In general, we like to talk about known items in the tax reporting community. For now, this is strictly a hypothetical exercise to make us think about how the future may play out. This is not meant to be advice; heck it is mostly just my noodling on the structure of the current regulations vs. the makeup of the incoming administration and its supporters and how it may impact the future of crypto tax reporting.
Take this as you may, but if you are interested read-on.
Where are we right now?
Let’s start with the current state. As we know the IRS released the regulations covering their position on digital asset reporting by third parties (Brokers) this year. In summary, 2024 is just like prior years, 2025 will begin reporting of gross-proceeds on sales, and 2026 will begin requiring cost-basis and gain/loss reporting on sales.
This is an oversimplification but gets the key ideas out there to drive the discussion forward.
What happens in 2025?
If you are looking at your business and see yourself in a position where you think you may have an obligation to report for tax year 2025 transactions, you benefit from being prepared that nothing in this plan will change during the first term in the second Trump administration.
There will be a lot of priorities for the new administration, and this may not make the day-one agenda so be prepared to do gross-proceeds at the minimum. Pick your investments strategically, however, don’t over-spend on platforms that charge you to be prepared for reporting that is now up in the air.
Ok, why do you say, ‘up in the air’?
President Trump and Vice President Vance are very pro crypto, with the president signaling that the FTC would no longer regulate crypto, but it would go to the CFTC. This reduction in oversight along with a desire to reduce tax burdens overall make for a powerful combination that I expect to lead to the delay of the implantation of the new regulations in the second year of the new administration.
If nothing is done before the mid-term election cycle it may not be possible for the Republican party to change the underlying law that is driving digital asset reporting requirements (assuming they lose either the house or senate), so we will keep a close eye on how this develops.
Even so, it now seems likely that we will see a delay in the implementation of regulations at the minimum if not an outright repeal of the reporting requirements. Me personally, I am 80% sure that this is not going forward but only 20% sure that we will see legislative action to permanently change the law.
Great, so gone for now. What to do?
Well, plan on being ready for gross proceeds reporting in 2025 and do what you can to minimize your out-of-pocket costs related to future reporting like basis. If you can, store the purchase dates and prices yourself and if not find someone who will do it at good value. Optimally, try to arrange to only pay if the data is reported.
Things may not change, but if you look at the current trajectory, I will bet they do, and you should talk internally and decide what risks you think are worth taking.
