Tax Expert Breaks Down the Crypto Tax Basics for Beginners

All right. It's not quite time to file taxes yet, but no, no better time to get some answers. If you've bought sole traded, earned or lost money in crypto this year, you might have some questions. It's tax week here at coin desk where we can hopefully help you answer some of those questions. Joining us now is Jackson here at Chief tax Information Officer, Mark Steber. Welcome to the show. Mark. Good to be here. Very exciting time. You're correct. 45 days from tax day. So, uh it's time to start thinking, Mark. I don't often hear people describe tax season as an exciting time. So thank you for bringing that refreshing perspective to the show. Exciting time. All right. Uh You know, a lot of, well, maybe not in the last year but some new investors in crypto in the last year. What do these new retail investors who are maybe interacting with centralized exchanges need to know uh this coming tax season? Well, not just this coming tax season but really all the time. Uh you know, taxes are complicated, 70,000 pages. You know, it's immersed in our social fabric. Uh you know, and So taxes on the simplest day are complicated, but you insert digital assets a little or a lot. You know, it really, really can upscale the size and complexity of your tax return. So I'll simply say it this way if you're not intimately familiar with whatever you're dealing with on your tax, buying and selling stocks side gig and in particular digital asset uh purchasing, selling, trading and all of that, you, you really need to pay attention because up till now, it's largely been a, a hands off kind of a situation with the internal revenue service in states, you know, not much regulatory oversight or reporting as your prior guest said, but that's all changing both now, historically, in the last couple of years and certainly in about 14 months in tax year, 2025 when really new regulations come on board for reporting the new 1099 D A or digital asset. Yeah. And you don't want to start reporting then and having bad history in the background that the IRS might find. So if you've got digital activity on your taxes or in your life, understand the tax rules, they're not all bad. And if you've got gains and if you're happy, you know, you probably have a taxable reportable transaction and you need to handle that accordingly. Yeah, let's talk about one of those games. It's staking, right. So that, that's something that, you know, people are out there staking their staking whatever. They, I don't, I don't wanna, I wanna use a, a polite term for their tokens. Um, but, but they're staking out there and they're receiving some rewards. How is that treated, uh, for all those kids at home who are doing this for the first time. Yeah, there's a lot to know in the digital asset tax arena. I, I'll simply say it at a simple, simple level and you really should read up on it or see a tax professional. If you're happy with something that's happening, you, you're probably doing something that's really good. And if you're earning, then you might have a taxable transaction at its simplest level. If you're buying or selling a stock and you have a gain, you have a reportable transaction, the, the crypto market is treated a lot like that. If you buy a digital asset, no real problem with that. But as soon as you convert it, whether you sell it or trade it, if you have a gain, you probably have a reportable event. If you have a loss, you could have a deduction. Now, once you get into splits and forks and drops and all of those things, you know, if you're happy again, I'm gonna go with a very simple binary test, then you probably have some something that you need to take into consideration. Now, not everything that happens. For example, if you have a split that doesn't necessarily create a taxable event, but the number one mistake I see in the Digital Asset arena is when you have a trade, when you buy crypto one, you don't necessarily sell it, but you trade it for another one. A lot of people I talk to say, well, I didn't cash out, I didn't sell that asset. Well, converting an asset under the tax code is a lot like selling, you had an asset, you traded it for a new asset, You might have had gain or you might have had a loss. And at that point, you have a reportable transaction right now. Your exchange might or might not send you an information report, you might not have something that was sent to you that tracks all that. But in 2025 rest assured you will and so will the IRS if you've got that information, great. But here's another mistake that I see a lot of people making just because you didn't get an information statement and that extends to W twos or other 1090 nines does not in any way change your reporting responsibility to the IRS or your state. If you had a gain, you're supposed to put it on your tax return. And as I started and I'll stop here and say crypto is a really, really complex area gains aren't all they seem basis is equally complicated and you might not know. And if you don't, you need to find someone who can help you. So II I just for, to simplify it because I, I, I'm a simple person. If I stake some E I get, let's say 4% in return from it in E that's taxable. Correct. If you're getting drops or if you're getting something that is tantamount to a dividend or you're getting some new asset. Uh Odds are it's taxable. Now again, I don't want to get into too much detail on these because each and every transaction is different. But for example, I if you own a share of AT&T stock and then you get a dividend in cash, that's reportable. If you get a stock dividend. On the other hand, that may very well just increase your, you know, number of shares or number of uh you know, crypto uh coins in this particular case and you might just have a diluted basis, but each individual transaction is different. So I don't, I don't want to over simplify or give a rule of thumb because I see a lot of mistakes made when they say no, that's not taxable. You need to talk to your professional and find out what type of a, a drop or what type of a fork or what type of a transaction it actually was. Because here's the other thing about digital assets that I've watched over the past few years as soon as you establish a a baseline of a transaction, some new creative entrepreneur and some new broker or some new digital asset inventor creates a new way of doing it to circumvent some other, you know, plan. So e every transaction is different and every type of asset is different. And that's why it's hard to classify these as either securities or assets because everyone's got a nuance. So most times if you're happy, you, you probably have an income event and you have a taxable event, but that doesn't necessarily equate into every single transaction in the crypto arena because everyone's different if you're just having new shares drop because you own shares that may not necessarily be a reportable transaction, you may just have more shares with less basis than you originally invested, but I don't want to oversimplify it and just say no, don't worry about that. You just now have 200 units instead of 100 units. You don't have any taxes. I it's never really that simple and now we are going to have to leave it there. Thank you very much for joining us for tax week. It's wonderful to be here. Watch out for 2025.