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Don’t Overpay: Determining the Fair Market Value of Cryptocurrency Airdrops
To the non-crypto enthusiast, the term “airdrop” may conjure an image of a pallet of relief supplies parachuting in from above. In the cryptocurrency world, the term has a very different meaning, but conjures the same mental image. In the simplest terms, a crypto airdrop is a token that appears in your wallet without being purchased, although in some cases additional actions may be necessary to facilitate the transfer of the asset. An airdrop can take several different forms, the most basic of which is an unsolicited token that simply shows up in your wallet. This is typically done as a marketing campaign, to try to expand the user base of a new project. Generally, only a nominal amount of the token is distributed. Many times, this type of airdrop is done maliciously as part of a phishing or dusting attack. The vast majority of these airdrops are unwanted; they function as cryptocurrency’s version of “junk mail.” Other airdrops are used to reward users of a particular protocol for their past behavior. Typically, this will take the form of a governance token or some other newly minted token. Occasionally, the new token will automatically be deposited in the recipient's wallet, but most of the time the user will need to connect their wallet to a website and actively claim the reward. You may also be required to pay a gas fee to enable the transfer. Many airdrops of this type contain tokens of substantial value, so proper determination of when receipt takes place and what the fair market value (FMV) is can have considerable impact to tax. While the two previous examples are the most common form of airdrops, they are not limited to the above. In practice, any unsolicited token received is generally considered an airdrop. This can also apply to non-fungible token (NFT) and game-based environments. Small differences in the facts and circumstances of the airdrop may have outsized impacts on taxability and your planning opportunities. Keep reading to learn more.
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Small Mistakes With Huge Costs for Your Client’s Tax Returns
We’ve all been there. A client walks into your office and, somewhere in the conversation, you realize that a seemingly minor oversight, a missed deadline, a form nobody filed, an election nobody mentioned, has spiraled into a five- or six-figure tax problem. In my years of practice, some of the most expensive mistakes I’ve seen weren’t the result of aggressive planning gone wrong. They were small, quiet errors. The kind that happens when a deadline slips, an election isn’t made, or a form gets overlooked entirely. The tax code is unforgiving in these situations, and the IRS has little sympathy for “I didn’t know.” This article walks through some of the most common, and most costly, small mistakes that can devastate your client’s tax situation, along with practical guidance for avoiding them.
When Debts Go Bad: The Challenges of Deducting Delinquent Debts
It is painful when you finally realize that the money you expected to be repaid is never coming back. The tiny silver lining in that cloud might be the tax benefit of “writing off” the debt. Unfortunately, that silver lining may well be eclipsed by an even bigger cloud. Writing bad debt off is not that easy, and there’s probably no silver lining to that cloud. Ironically, you might find that the mistakes that caused you to be holding a bad debt might be what prevents you from getting a usable deduction.
Building a Partnership the Right Way: Tax Strategies From Day One
Setting up a partnership is a lot like getting married. It’s exciting, full of promise, and if you do it right, it can be incredibly rewarding. Do it wrong, and you’re setting yourself up for years of headaches and potentially significant financial loss. The decisions you make at the formation stage of your partnership will impact your tax situation for years to come, and in some cases, these decisions can be difficult or costly to undo later. In this article, we’ll explore the critical steps in setting up a partnership and the tax implications of various contribution strategies. You’ll learn how to establish a foundation that maximizes tax advantages from day one.
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