The popularity of cryptocurrency has been on the rise for years. But 2020 has been a very special year with many more retail investors getting exposure to bitcoin during the COVID-19 lockdown, public companies beefing up their bitcoin holdings, and major fintech companies like PayPal introducing cryptocurrency products. This makes it a great time to look into the 2021 year and discuss what we can expect in the crypto tax space.

1. Crypto Tax - A
2021 Outlook
01.

2. The popularity of cryptocurrency has
been on the rise for years. But 2020 has
been a very special year with many more
retail investors getting exposure to
bitcoin during the COVID-19 lockdown,
public companies beefing up their bitcoin
holdings, and major fintech companies
like PayPal introducing cryptocurrency
products. This makes it a great time to
look into the 2021 year and discuss what
we can expect in the crypto tax space.
02.

3. 03.
Increased
Crypto Tax
Awareness
In 2021, 150 million American taxpayers
will be asked at the top of the front page
of IRS Form 1040: “At any time during
2020, did you receive, sell, send,
exchange, or otherwise acquire any
financial interest in any virtual currency?”.
This will also make cryptocurrency taxes
which was once a niche subject a more
mainstream area of taxation that all
accountants need to be aware of.

4. IRS Will Catch up With
New Developments
The crypto space has rapidly evolved since the IRS issued
the original virtual currency tax guidance back in 2014.
Novel concepts like staking, yield farming, and various
Decentralized Finance (DeFi) transactions are left
unaddressed. With Ethereum transitioning from Proof of
Work (PoW) to Proof of Stake (PoS) consensus, tax
regulators will most likely introduce refined guidance that
will help in easier tax filing.
Specifically, we might expect to see additional IRS
guidance around DeFi transactions in 2021.
04.

5. Exchanges will
have an uniform
tax reporting
standard
05.
Currently, tax information reporting among
crypto exchanges is not standardized. In
2021, we expect cryptocurrency exchanges
to have a comprehensive and uniform tax
reporting standards.

6. Less frauds, more gains
During 2020, we saw multiple high-profile tax
evasion cases primarily related to crypto frauds.
In 2021, we expect the IRS to initiate more
action against people attempting to evade
taxes (especially the fraudsters) on crypto.
This means more safety, less frauds, and more
gains.
06.

7. Your Cryptocurrency
Taxes in 2021 will
depend on how long
you’ve held crypto
07.

8. 08.
Short-term
capital gains
If you held Bitcoin or Ethereum for one
year or less, any profits would be
considered short-term capital gains, taxed
at your regular income tax rate.
Long-term
capital gains
Profits earned on crypto held for one year
or more are taxed as long-term capital
gains, generally at a lower rate than most
income taxes.

9. 09.
If you earn crypto by mining it, or receive it as a
promotion or as payment for goods or services, it counts
as part of your regular taxable income. You owe tax on
the entire value of the crypto on the day you received it,
at your regular income tax rate. And if you hold the same
cryptocurrency you mined or earned from these
activities, its value increases, and you either spend it or
sell later at a profit, you would also owe capital gains
taxes on the profits, based on how long you’ve held it.

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