Crypto Cares The Rise of Virtual Currencies and You.

Cryptocurrency is a prevalent topic in financial news these days, falling in and out of favor depending on whom you ask. Institutions are decrying it in one instance, then taking large amounts of it on to their books in another. Goldman Sachs, Morgan Stanley, JP Morgan and Bank of America--to name a few have all clipped their toes in the volatile crypto waters.

Moreover, as the value of the various stablecoins and cryptocurrencies pings up, down and sideways, retail investors have been getting in on the act, not wanting to miss out on the next big thing or rug pull for the less fortunate.

If anything, the retail market's interest in virtual currencies will mean CPAs can expect to deal with the tax logistics come tax season, and we asked some CalCPA members for their comments on the topic to help you get your mind around what you might expect. We received input from CalCPA Personal Financial Planning Committee Member Dan Herron, CPA/PFS CFP (partner, Better Business Financial Services; principal, Elemental Wealth Advisors) and Moss Adams Senior Manager Erik Weinapple, who recently gave a presentation on the topic to CalCPAs Committee on Taxation.

A Q&A with. Erik Weinapple WHAT DO YOU THINK CRYPTO REGULATION MIGHT LOOK LIKE?

It's hard to say. The current infrastructure bill is attempting to redefine the definition of a broker and possibly push cryptocurrency exchanges like Coinbase and others to begin reporting 1099 information to the IRS on behalf of their customers, similar to what traditional brokerages currently are required to do. I think that's the start. The hard part will be figuring out regulations that will help track information without being overly burdensome to the crypto space and effectively slow down innovation. Some traditional rules will be hard to follow especially in the decentralized finance (DEFI) space whereby there are no real service providers and "customers" interact directly with a protocol rather than with a human. Forcing 1099 tracking to KYC rules on these types of platforms may be impossible or if possible, overly burdensome to the industry.

WHAT ARE THE TRX IMPLICATIONS SURROUNDING CRYPTOCURRENCY?

That's a loaded questions since it all depends on what you're doing with crypto. If you buy and hold as a long-term investment, you're likely going to see similar treatment to if you bought and sold stock. If you are mining or staking crypto, then you'd likely end up with trade or business income treatment under Tax...