Trader Tax Status Crypto

Technical topics regarding tax preparation.
#1
MTS  
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A taxpayer inquired about the ability to claim Trader Tax Status, but is trading cryptocurrencies. I'm assuming they would not qualify for TTS given they trade crypto (and not 'securities'), as I haven't seen anything from the IRS addressing this question. Anyone aware of any recent guidance on a scenario like this with cryptocurrencies? Thanks
 

#2
JAD  
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Spidell recently wrote about this. They said that some professionals are letting clients do this but that the IRS says crypto is property, not securities. Their advice: wait for guidance.
 

#3
MTS  
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Thanks for sharing - I don't have any desire to advise a client to move forward and then later find out it isn't allowed - looks like a waiting game.
 

#4
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Are they trying to get MTM or take advantage of some other benefit? If they're just trying to deduct expenses, wouldn't a determination that it's property and not securities be beneficial?
 

#5
MTS  
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It appears that they withdrew a lot of money from their retirement account, setup shop trading crypto, and it went south and they lost a lot of money. I don't know the details, but they'll be looking at early withdrawal penalties, along with taxes owed, on that distribution (apparently they didn't withhold much), and without TTS they'll have a lot of capital losses to carryforward instead of possibly using those to offset other income.
 

#6
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Just thinking out loud here, 1) this could be completely wrong, and 2) may not get you where you want anyway, but could the crypto be considered inventory? (In case it's not obvious, I have no idea how inventory is treated for accounting or tax purposes, just throwing out ideas).
 

#7
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I don't think inventory, but I would say investment property. Would there ever be a time a loss on crypto would be a non deductible personal loss instead of an investment loss?
 


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