Tax-Loss Harvesting with Cryptocurrencies / Lin William Cong, Wayne Landsman, Edward Maydew, Daniel Rabetti.

Format:

Book

Author/Creator:

Cong, Lin William.

Contributor:

National Bureau of Economic Research.

Landsman, Wayne.

Maydew, Edward.

Rabetti, Daniel.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30716.

NBER working paper series no. w30716

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

We describe the landscape of taxation in the crypto markets, especially that concerning U.S. taxpayers, and examine how recent increases in tax scrutiny have led to changes in trading behavior by crypto traders. We predict under a simple theoretical framework and then empirically document that increased tax scrutiny leads crypto investors to utilize legal tax planning with tax-loss harvesting as an alternative to non-compliance. In particular, domestic traders increase tax-loss harvesting following the increase in tax scrutiny, and U.S. exchanges exhibit a significantly greater amount of wash trading. Additional findings suggest that broad-based and targeted changes in tax scrutiny can differentially affect crypto traders' preference for U.S.-based exchanges. We also discuss other gray areas for tax regulation related to new crypto assets such as Non-Fungible Tokens and Decentralized Finance protocols that further highlight the importance of coordinating tax policy and other regulations.

Notes:

Print version record

December 2022.