Tom Talks Taxation of Crypto on CNBC

The Coinbase IPO. Elon Musk on Saturday Night Live discussing Dogecoin. Crypto seems to be front and center in the news lately. EisnerAmper Tax Partner Tom Cardinale was a guest on CNBC’s Power Lunch where he discussed cryptocurrency tax matters with hosts Tyler Mathisen and Rahel Solomon.

Tom indicated that many unsuspecting cryptocurrency transactions are taxable. But, perhaps more importantly, investors need to be aware of a couple of key points. First is the duration of the crypto holding, short- or long-term, for capital gains purposes (ordinary tax rate versus 20% long-term rate). Second, they need to establish which accounting method they apply for tax purposes when they sell or exchange crypto, either by using the IRS default of first-in, first-out (“FIFO”), or the more-involved specific identification method.

Finally, Tom discussed some of the more common crypto-taxation questions he regularly receives from investors. The first deals with the effective tax rate. As most people focus on the core federal capital gains rate, but don’t consider the net investment income tax and state and local income tax, they really need to set aside enough money to cover what could be upwards of a 30% to 35% blended effective tax rate on the total crypto gain. The other question centered on the ability of offsetting crypto losses with stock gains as both are treated as one pool of assets for the netting of tax gains and losses.

The takeaway? Due to the intricacies involved, proper tax planning with someone who specializes in this area is paramount. Check out the complete interview here.