Latest Crypto Tax Guidance Shows IRS Still Confused

Written by Robin Singh, a cryptocurrency tax consultant based in the UK. He is the founder of Koinly.io - a cryptocurrency tax solution that automates capital gains reporting. He is a former Fintech engineer with a knack for numbers. Besides being a crypto enthusiast, he is also a passionate gamer and can be found in Orgrimmar when not at his desk.


After years of silence, the IRS finally released an update to their 2014 cryptocurrency tax guidelines in October. The update was welcomed by accountants and taxpayers alike, who had been left in the dark when it came to declaring their crypto taxes for far too long. While the IRS makes certain aspects of cryptocurrency taxes clearer, some of the new additions have only contributed to the overall confusion and left many unanswered questions.

If you have read the new crypto tax laws but still find yourself struggling to comprehend what these changes mean for you, this analysis will break down the major additions so that you can file your crypto taxes more confidently.

More Control Over Your Capital Gains and Taxes

Until now First In First Out (FIFO) was the only confirmed method for calculating capital gains on crypto but in the new guidance the IRS has also clarified that you are allowed to use Specific Identification (SI). For those unacquainted with FIFO, it’s basically a way to figure out the cost of an asset when you are buying and selling in multiple transactions.

For example, let’s imagine that you purchased 4 BTC for $400 in January and another 2 BTC for $400 in August. You then sell 5 BTC for $1,000 in November. The cost of the first 4 BTC will come from the first 4 BTC you purchased, while the remaining 1 BTC will get its cost from the second transaction. So, your final capital gain becomes $400.

Using SI, on the other hand, you can choose to calculate gains and losses using specific transactions - as long as you can prove that you are actually selling the assets from those transactions (for ex. by keeping the received assets in separate wallet addresses).

In this scenario, let’s imagine that you bought 1 BTC for $100 and another BTC for $500 and both are held in two different addresses. Now if you were to sell 1 BTC for $500, you can simply sell the one that you bought for the same price to avoid any capital gains. With FIFO you would have sold the one you bought first for $100 and realized a $400 capital gain. This extra control gives you the ability to make more tax-savvy trades.

Picking the Right Accounting Method

Which method you choose to use will ultimately depend on how much time you are willing to devote to your tax planning efforts. If you want to reduce your taxes - and have the time to do so - you may want to look into SI. If, on the other hand, you are filing crypto taxes just before the deadline you are unlikely to benefit much from SI and would do well to just use FIFO.

There is also another calculation method available called Last In First Out (LIFO) which is actually the opposite of FIFO. It is used by some for calculating capital gains on shares but the IRS has not explicitly confirmed that you can use it for cryptocurrencies too.

In the end you should pick a method and stick to it. You are not allowed to switch between accounting methods without prior approval from the IRS.

On Hard Forks

The IRS also released a number of Q and A’s that specifically addressed some questions related to hard forks and how they should be treated from a tax perspective.

To summarize the new information regarding forks, the IRS has stated that any cryptocurrency obtained as a result of a hard fork is considered to be taxable income. Regardless of whether or not you asked for the digital assets or you refuse to use them, you still must report these earnings to the IRS and pay the required taxes for the new crypto.

If you are disappointed with this, you are not the only one. Many crypto influencers took to Twitter to express their feelings, some saying they will owe taxes on the BitcoinSV fork even though the coin is practically worthless. While the IRS’s guidance does make sense for forks such as the Bitcoin Cash fork which was widely accepted, they still have a long way to go in defining fair laws that can be applied universally to all kinds of crypto transactions.

Keep in mind, however, that you will not always receive crypto when a hard fork occurs. If your wallet provider or exchange doesn’t support the new coin, you will not see any crypto available, which means that you won’t have to worry about reporting it either.

The Bottom Line

Tax agencies all over the world are grappling with cryptocurrencies and amending existing laws to also apply to virtual currency. In August the IRS even sent out thousands of letters to suspected crypto tax evaders to remind them of their obligations.

Next year you will also find a new question at the top of your tax return that specifically asks whether or not you traded with cryptocurrencies. Almost 150 million taxpayers are expected to answer this, so interest in cryptocurrencies is likely to skyrocket.

As awareness and adoption of Bitcoins and other cryptocurrencies continues to grow, we will see more and more regulations and laws being enacted to combat the threat of tax evasion and money laundering. It is important to keep an eye on new regulations concerning crypto taxes so you are not caught off guard come April.

Argentina’s Smallest Currency Denomination Now Worth Only One Satoshi

Michael LaVere
  • Argentina's smallest currency denomination, the centavo, is now worth one satoshi.
  • The country is in the midst of a currency crisis, with the inflation rate reaching 50 percent. 

Argentina’s smallest unit of currency has slumped in value to now be worth the equivalent of one satoshi. 

The Centavo, which has been in circulation since 1854, has joined the Lebanese Lira and Vietnamese Dong in being the same value as the smallest denomination for bitcoin. 

The currency’s fall in value was noted by Argentinian Reddit user u/OneMoreJuan, who used the Centavo’s plight as an example to invest in bitcoin. Another user in the comments claimed that scrap material for the Centavo was now worth more than the coin itself.

Argentina is one of several South American countries to undergo hyperinflation and currency crisis in recent years, with the government defaulting on its loans a record nine times. The country entered its third year of recession prior to the start of the coronavirus pandemic, after undergoing an economic crisis that first began in 2018. 

According to a report by Bloomberg, Argentina’s inflation has outpaced expectations, with the current rate reaching roughly 50 percent. 

Argentinians have responded to the devalued fiat by turning to bitcoin and crypto-assets in droves. Data aggregator Coindance shows a significant spike in weekly LocalBitcoins volume for Argentinian customers since the start of the year, reaching as high as $70 million in May.

Featured Image Credit: Photo via Pixabay.com