New IRS Crypto Wallet Tax Rules... quick update (Patreon)

First not set in stone. There are some things that are misunderstood and rem I AM NOT A TAX ACCOUNTANT AND THIS LAW IS CONFUSING AS HELL... but here goes nothing.

• Universal Wallet Reporting for Self-Custodied Crypto Continues in 2025:

  • Simple Explanation: Even though some people might have heard that you need to change how you report your crypto taxes by 2025, that's not correct. If you keep your crypto in your own wallets (self-custodied), you can still use the 'universal wallet reporting' method after 2024. This means you can treat all your crypto as if it's in one big wallet for tax purposes, even if it's spread across different actual wallets or addresses. ie aggregate all wallets. I personally have BTC cold storage - all one wallet locked away so not even I can touch it. I have a Perp Trading Wallet. I have A wallet for Staking SOL. etc.

  • More Detail: Universal wallet reporting allows you to consider all your self-custodied crypto as part of one big pool when you report taxes. This simplifies things because you don't have to track each piece of crypto in different wallets separately. Despite rumors or confusion, this method remains valid post-2024, providing a straightforward approach for those managing their crypto independently.

• Treasury Regulations Do Not Limit Specific Identification (Spec ID) for Self-Custodied Crypto:

  • Simple Explanation: When you sell your self-custodied crypto, you can still choose which specific coins or tokens you're selling, even if they're from different wallets. This is called 'specific identification' or 'spec ID'.

  • More Detail: Spec ID means you can pick which exact units of crypto you want to sell, especially useful if you want to sell the ones you bought at a higher price to minimize your tax liability. The Treasury's rules allow this flexibility for self-custodied crypto, meaning you're not forced to sell the oldest or newest crypto first; you decide, which can be beneficial for tax planning.

• A Wallet Under the Regulations is Defined as a Storage Method for Private Keys, Not Just an Address:

  • Simple Explanation: According to the tax rules, a 'wallet' isn't just an online address where your crypto lives; it's where you keep the keys that prove you own your crypto.

  • More Detail: In crypto, your private key is like the password to your bank account. The regulations consider a wallet to be any method you use to store these keys, whether it's a hardware device, a piece of paper, or a software program. This is important because it means how you store your keys (not just the address) matters for tax purposes.

• You Can Treat All Self-Custodied Crypto as Held in One Place if All Private Keys are Stored Together:

  • Simple Explanation: If you keep all your private keys in one place, like on one piece of paper or one device, you can treat all your crypto as if it's in one big wallet for tax reporting.

  • More Detail: This rule simplifies tax reporting by allowing you to consolidate all your crypto under one 'virtual roof' if all the keys that control them are kept together. This is practical for people who use hardware wallets or other secure storage methods where keys are centralized.

• The IRS Emphasizes the Need for Consistent Cost Basis Reporting Method Choice, Either Universal or Wallet-Based:

  • Simple Explanation: When reporting your crypto taxes, you need to pick one way of calculating how much you paid for your crypto (cost basis) and stick with it. What I do is buy it all on Coinbase and move it to Phantom and stake it there or trade it on JUP. You can choose between treating all your crypto as one big pool (Universal) or tracking each wallet separately (Wallet-Based).

  • More Detail: Consistency in how you report your cost basis is crucial because switching methods can complicate your tax situation and might raise flags for audits. The IRS wants you to choose either the Universal method, where everything is one pool, or the Wallet-Based method.

NOTE NOTHING IS SET IN STONE.