Navigating IRS Crypto Compliance with Ease

The IRS recently dropped new guidelines with Revenue Procedure 2024-28, and they’ve thrown a wrench into the works for many crypto investors. The implications are massive, affecting not just small-time traders but also the big players in the market. As the deadline approaches, understanding these changes becomes imperative. Thankfully, Kryptos’s Safe Harbor Planner might just be the tool that helps us transition smoothly to the per-wallet tracking system.

What’s New with IRS Rev Proc 24-28?

Back in July 2024, the IRS rolled out Revenue Procedure 2024-28, and it’s a game changer. Starting January 1, 2025, U.S. taxpayers are required to track their assets in a per-wallet or per-account manner. This means a shift to a more detailed and transparent tracking system, which sounds good in theory, but can be a real headache for traders with diverse portfolios.

Who’s Affected? Small-Scale vs. Large-Scale Investors

The Burden of Recordkeeping

Both small and large investors are feeling the pinch when it comes to recordkeeping. You have to keep track of how many units you have across your wallets, the cost basis, and the acquisition dates of those units. It’s a lot of information that needs to be documented, and you can’t just wing it.

Safe Harbor: A Double-Edged Sword

There is a silver lining. The safe harbor allows you to allocate unused basis across any digital asset units held in multiple wallets or accounts before the new year. It’s a decent option for both small and large investors, but you have to be reasonable in your allocations, treating each type of asset separately. Big traders might find this tricky with their various holdings and numerous transactions.

Once Allocated, Always Allocated

The biggest catch? Once you allocate that basis, you can’t take it back. It’s set in stone, so you better be sure you’re right.

Specific Identification: A Necessary Evil

Taxpayers can use specific identification to determine which units are sold or exchanged. If you’re holding your assets outside a broker’s custody, you’ll have to identify those units by something—like purchase date or time. Larger traders might find this cumbersome, while smaller investors may have an easier time but still need to be accurate.

Timing Is Everything

The safe harbor applies only to units acquired before 2025, so make sure you’re on the right side of that.

The Shift to Per-Wallet Tracking

Benefits of a More Granular Approach

Per-Wallet tracking gives each transaction a more detailed view, which is nice since it’s how exchanges report to the IRS. It aligns with the new requirement that brokers report user data directly to the IRS, potentially reducing discrepancies.

But, There’s Always a But

Keeping track of cost basis for each wallet can be a pain, especially for active traders. Picking tax lots is limited to transactions within the same wallet, which is less than ideal if you’re regularly moving assets around.

Transition Challenges

Switching from a universal method to per-wallet tracking is not going to be smooth for everyone, especially if your assets are spread out among wallets. Fortunately, the IRS is providing a one-time safe harbor to ease the transition.

How Kryptos’s Safe Harbor Planner Can Help

Tailored for Investors and CPAs Alike

Kryptos’s Safe Harbor Planner was created with the December 31 deadline in mind. It helps users and CPAs migrate from Universal Cost-Basis tracking to Per-Wallet tracking, and it’s apparently the only platform that supports both Global Allocation and Specific Unit Allocation methods.

More Than Just a Tax Software

Kryptos isn’t just another piece of crypto tax software. It’s a full-blown financial hub for Web3. It has tools for all things crypto, from real-time transaction tracking to tax automation.

The Role of AI in Crypto Tax Software

Making Tax Filing Easier

The AI features in crypto tax software simplify tax filing. They can replicate human-like interactions, making it easy to access transaction summaries and create yield strategies.

Ensuring Accuracy and Transparency

Combining AI with blockchain ensures the accuracy and transparency of transaction records. AI can spot patterns that trigger taxable events, while blockchain ensures all transactions are tamper-proof.

Combatting Fraud

AI is essential for detecting suspicious trading activities. By using AI and blockchain, platforms can better ensure compliance with regulations, which builds trust.

Real-Time Insights

AI can also provide real-time insights into portfolio performance and recommend tax-saving strategies.

Automation Is Key

The aim is to automate as much of the filing process as possible. Users can interact with the software through a user-friendly interface.

Customized Rules for Everyone

AI-enabled rules engines let you create customized rules for categorizing transactions.

The Future Looks Bright

As AI and blockchain technologies mature, they’re expected to reshape the crypto industry, making it more efficient and accessible.

Summary

The IRS’s new guidelines are a big deal for all crypto investors. Kryptos’s Safe Harbor Planner seems like a tool that can help navigate the murky waters of these regulations. With the help of AI and blockchain technology, there is hope for a smoother tax season ahead.