Last Call To File Your Taxes

Tax anxiety is real. And crypto tax anxiety is even scarier. Why? Because almost nobody has any idea what’s going on – maybe the CPAs know what is going on, but even they’re at the mercy of incomplete and not-so-comprehensive guidance from our tax overlords.

However, this is the short of it: yes, you need to file your “crypto taxes” – and that includes booking your gains and losses on NFTs, tokens, and stablecoins. If you decide not to do that, be assured that you will be hunted down savagely and taken alive. 

Or, alternatively, you can just take a few pages out of our book:

First of all, you must know that crypto is taxable. 

A report by CryptoTrader.Tax claims that almost 25% of crypto investors didn’t report crypto on their tax returns because they didn’t realize it was taxable. Another 20% said they did not know how to report their crypto activities. (Spoiler alert: This will not go over well.)

So, before filing your crypto taxes, make sure you have a list of all the exchanges you’ve traded, bought, or sold cryptocurrency on. Some exchanges will prepare a 1099-B, or some companies such as Coinbase will paywall one behind a subscription. Alternatively, some will go Nightcrawler Mode and hang you out to figure it out yourself.

Reporting crypto activities is simple, and this puts you on your way to the second step.

The easy question is hard to miss: it’s a yes/no question about virtual currency on your tax return’s front page (Form 1040). 

The question reads: “At any time during 2021, did you receive, sell, exchange or otherwise dispose of any virtual currency?”

If you think the answer is yes, it probably is. Likely, if you’re reading this, the answer to this question is Yes – and you shouldn’t mark No, because that’s punishable by law (yes, really.)

The third step is to make sure you keep track of the different taxable events. For instance, cryptocurrencies can be earned through a variety of methods, such as mining, airdrops, staking your coins, or earning interest. This is your ordinary income that must be reported. You should report this income on your tax return on Schedule 1 as “Other Income.” 

Now, if you decide to sell your earned coins, you will have a capital gain or loss. Capital gains or losses are determined by the difference between the purchase price, called the basis, and the value when you sell or exchange. The tax rates are dependent on the length of ownership. Based on your taxable income and how long you have owned digital assets, you might qualify for long-term capital gains rates of 0%, 15%, or 20%. 

Remember, the same income won’t be taxed twice. When you sell your coins, the tax you pay is reduced by the cost basis of those coins you earned — which you report on your tax return.

These are some basic tips to keep in mind while filing crypto tax returns. You may use some crypto tax software to fill your forms quickly. If you do not report the crypto activity as taxable, it may be considered tax evasion or fraud, which may result in an IRS audit, penalties, or even criminal charges. (L + Ratio + You’ll Be Broke And Being Chased by the IRS.)

The tl;dr of this whole thing is: if you haven’t filed your taxes to the best of your ability, or gotten your CPA friend to do it, then it might be time to get some help.

Beanstalk ($BEAN), an Ethereum-based stablecoin, has become the latest victim of a hack, falling to zero after an attack on their DAO allowed unauthorized minting of the asset. On Sunday, cybersecurity firm PeckShield reported the attack on Beanstalk Farms, saying hackers stole more than $182 million. 

Hackers used two governance proposals and a flash loan on lending platform Aave to exploit the Beanstalk protocol, causing its stablecoin’s value to plummet from $1 to $0.15. 

The hackers took out $1 billion in flash loans from the Aave protocol denominated in DAI ($DAI.X), USD Coin ($USD.X), and Tether ($USDT.X) stablecoins. Using these funds, they amassed over 67% of the protocol’s governance. This allowed them to approve their own governance proposals, BIP-18 and BIP-19, which asked for the protocol to donate funds to Ukraine. These proposals had a malicious rider attached to them that drained funds from the protocol. 

This attack demonstrates how vulnerable the protocol security was. In its post-mortem, Beanstalk said that the blockchain security firm Omnicia audited the smart contracts. However, the audit occurred before the flash loan vulnerability was discovered.

According to PeckShield, all stolen funds were laundered through Tornado Cash, a service that allows users to send and receive crypto anonymously. This hack is currently the fifth-largest protocol exploit on the Rekt Leaderboard, which tracks crypto hacks. It’s also the second-largest this year after the massive Ronin Bridge hack, which was exploited for $625 million and was linked to North Korea.

Flash loan, a relatively mystifying portion of the DeFi space, allows unsecured or uncollateralized lending on-chain with lots of caveats – but it has become a leading way by which hackers exploit protocols and networks. Due to a flash-loan attack, Cream Finance lost $130 million last year, causing its native token $CREAM to plummet by 70%, and it hasn’t recovered since.

Beanstalk is a collateral-free stablecoin that relies on a decentralized community of lenders to maintain its price. Unlike the Solana Wormhole bridge exploit, it does not have any capital backing that could provide some relief to the investors. It appears unlikely that investors will get their funds returned or be reimbursed in any way.

Today was the last day for tax filing and perhaps that’s why the crypto market took so long to pick up. Terra, however, remained in the green throughout the day. Below you can read about it and some more tokens that stand out:

1. Terra: Terra, a blockchain protocol that lets users create stablecoins pegged to fiat currencies, was in high demand. This comes in the wake of the Luna Foundation Guard (LFG) announcing they had purchased an additional 123 Bitcoins worth roughly $4.9 million. The LFG’s official address currently controls $1.7 billion worth of Bitcoin, which makes it the third-largest single-wallet holder of Bitcoin.

The rally doesn’t stop here. The idea of accumulating Bitcoin reserves for TerraUSD has led to TerraUSD becoming the third-largest stablecoin by market cap, surpassing Binance Dollar (BUSD). It has a market cap of $17.5 billion, close to surpassing Dogecoin, the biggest memecoin. The native token’s surge was obvious with all the positive news surrounding Terra. $LUNA.X jumped 10% today, trading around $88.

2. Monero: Despite the market’s recent bearish trend, Monero, a privacy-focused cryptocurrency that obscures its blockchain data, is showing a bullish trend. Experts believe that investors look for privacy-focused cryptocurrencies at the time of geopolitical uncertainty. Today was also Monero’s birthday, which attracted investors to its platform. Its native token $XMR jumped 8%, hovering around $255.

3. Decred: Decred, a cryptocurrency that combines two consensus models—proof of work and proof of stake—was rallying today. The current surge is due to the upcoming Decred hard fork also plans to increase DCR rewards for PoS validators from 30% to 80%. Through this significant change, the network wants to show that it is switching from PoW consensus to PoS and is, therefore, environmentally friendly. Today, the native token $DCR.X rose to $64.21. It has increased by about 22% in the last seven days, bringing its total market capitalization to about $90 million.