Digital Asset Investors Embrace a Bullish Optimism
The digital asset market has been experiencing a surge in bullish optimism, as investors become increasingly optimistic about the pro-digital asset policies of the incoming Donald Trump administration. The price of Bitcoin (BTC) has soared to new heights since Trump’s presidential victory, hitting multiple milestones on its way to $100,000. This optimism has led to unprecedented developments in the digital asset space, including the use of Bitcoin as a form of payment for professional athletes.
Bitcoin Payments to Sportsmen
One such development is the Bitball Flag Football showdown, where professional football players will be rewarded in Bitcoin. This event is part of the International Federation of American Football’s 75 national member federations and is the first-ever NFL event featuring some of the biggest names in American football. The star-studded lineup includes over 22 football legends, including Russell Okung, a prominent advocate for athletes’ financial sovereignty and the first professional athlete to receive his salary in Bitcoin.
Digital Asset Taxation
The use of digital assets as a form of payment for professional athletes raises important tax implications. In the United States, digital assets are treated as property and are subject to income tax or capital gains taxation. The IRS provides guidelines on when digital assets count as income rather than a capital gain, including transactions that are viewed as additional income subject to income tax, such as receiving an airdrop or staking rewards.
Tax Breaks for Digital Asset Investors
American digital asset investors can benefit from a few tax-free allowances that can help them pay a little less tax. These include gifting digital assets under $18,000, which is known as the annual gift tax exclusion, and capital gains tax-free allowance, which allows individuals to earn up to $47,026 in 2024 in total income without paying capital gains tax on long-term gains.
How to Report Digital Assets on Tax Returns
Digital asset owners file digital asset taxes with their annual tax returns by answering the IRS’s digital asset transactions question on Form 1040. The IRS asks this question with variations for corporations, partnerships, estates, and trusts, including whether the individual received or sold a digital asset or a financial interest in a digital asset. Report digital asset disposals, capital gains, and losses on Form Schedule D (1040) and Form 8949.
Digital Asset Tax Disclosure Deadline
The US tax year is from January 1 to December 31, and digital asset tax deadlines match traditional assets: April 15 for most individuals. If a digital asset investor is a US expat, then you have until June 15. If you filed for an extension to file your taxes using Free File or Form 4868, you’ll automatically have an extension until October 15.
Can the IRS and State Tax Departments Track My Digital Assets?
Yes, both the IRS and state tax departments can track digital assets. The IRS has won cases against Coinbase, Kraken, and Poloniex, forcing them to share customer data, and the IRS has cross-border reach for tax evasion. The IRS has also levied its first stand-alone crypto tax fraud case, which led to a guilty plea by Frank Richard Ahlgren III for filing a false tax return underreporting gains from selling $3.7 million in Bitcoin.
Actionable Insights and Predictions
Based on the analysis above, here are some actionable insights and predictions:
- The use of digital assets as a form of payment for professional athletes is likely to increase, leading to further growth in the digital asset market.
- The IRS and state tax departments will continue to crack down on digital tax evasion, leading to increased scrutiny of digital asset transactions.
- Digital asset investors should take advantage of tax-free allowances, such as gifting digital assets under $18,000 and capital gains tax-free allowance.
- The digital asset market is likely to experience further volatility, driven by changes in regulatory policies and market sentiment.
Recommendations
Based on the analysis above, here are some recommendations for digital asset investors:
- Take advantage of tax-free allowances to minimize tax liability.
- Ensure compliance with digital asset tax reporting and filing obligations.
- Stay up-to-date with changes in regulatory policies and market sentiment.
- Diversify digital asset holdings to minimize risk.
By following these recommendations, digital asset investors can navigate the complexities of the digital asset market and make informed investment decisions.
