Top Tax Experts Provide Valuable Advice For Cryptocurrency Holders

April 15th, 2024, marked the filing day for taxes in the United States, so in honor of the occasion, and given how popular cryptocurrencies have become over the years, various tax experts have provided their top advice for American cryptocurrency holders and expatriates.

For starters, Tyler Menzer, a CPA, warns against using default settings on online tax-preparation software, especially concerning cryptocurrency gains. Many platforms use the highest-in, first-out (HIFO) method, which may inadvertently increase taxes. Selling long-term assets, held for over a year, can result in lower tax rates compared to short-term assets. Taxpayers can opt for the specific identification method to sell long-term assets first, potentially reducing their tax liability significantly.

An Extension May Be Beneficial

Robert W. Wood, a tax attorney at Wood LLP, suggests considering an extension until Oct 15th, which does not necessarily raise the likelihood of an audit. Extending the tax filing deadline is an option at no cost, however, keep in mind that the six-month extension will not postpone the payment deadline.

While there are different opinions on what triggers an audit, there is currently no data indicating that tax returns filed on extension face higher audit chances. In fact, filing for an extension might even lower the risk of an audit. Rushed filings at the deadline can sometimes lead to mistakes or oversights that might prompt an audit. Extensions provide time to gather records, explore reporting options, and seek professional advice, ensuring accurate filing immediately.

Concerning Foreigners

Justin Wilcox, a partner at FML CPAs, provided useful information for foreigners. He highlighted the potential for tax exemption under the foreign earned income exclusion for those earning income abroad and spending fewer than 35 days annually in the United States.

According to Justin, if an individual has worked overseas as a U.S. citizen in 2023, they could potentially exclude up to $120,000 in wages in federal taxes, along with a housing exclusion, which varies by country. However, eligibility requires meeting the tax home test and one of two residency requirements, namely the physical presence test or bona fide residence test.

Crystal Stranger, CEO of Optic Tax, advises against confusing the foreign earned income exclusion with the foreign tax credit. While the FEIE excludes foreign income concerning U.S. taxes, the FTC offsets U.S. taxes with foreign taxes paid. The choice between them depends on various factors, including the tax rates in the host country and potential future tax changes in the U.S.