Here's how the *proposed* 20% tax on unrealized gains work according to the 2023 Revenue Proposal issued by the Treasury todayπ
There are some good news and bad news (mostly) for both crypto and non-crypto holders.
There are some good news and bad news (mostly) for both crypto and non-crypto holders.
There are seven things to unpack here:
Who is subject to the tax?
Tax formulae
Payment plan
Uncredited pre-payments credits
Phase in limit
Reporting to the IRS
Illiquid taxpayer
Let's go one by one.
Who is subject to the tax?
Tax formulae
Payment plan
Uncredited pre-payments credits
Phase in limit
Reporting to the IRS
Illiquid taxpayer
Let's go one by one.
1/ Who is subject to the tax?
Taxpayers with a net worth of over 100M.
Networth = Assets - Liabilities.
Taxpayers with a net worth of over 100M.
Networth = Assets - Liabilities.
2/ Tax formulae
Min tax = 20% * (regular taxable income + unrealized gains on the net worth)
Net worth = Assets - Liabilities.
Min tax = 20% * (regular taxable income + unrealized gains on the net worth)
Net worth = Assets - Liabilities.
3/ Payment plan
- Payment plan is available. (Good news)
- Can pay the 1st year of min tax liability in 9 equal annual payments.
- Subsequent years' min tax liability can be paid in 5 equal annual payments.
- Payment plan is available. (Good news)
- Can pay the 1st year of min tax liability in 9 equal annual payments.
- Subsequent years' min tax liability can be paid in 5 equal annual payments.
4/ Uncredited pre-payments credits
20% annual min tax payments on *unrealized* gains result in "Uncredited pre-payment credits".
These credits can offset the actual capital gain taxes that get triggered when you dispose of the asset and *realize* the gains in the future.
20% annual min tax payments on *unrealized* gains result in "Uncredited pre-payment credits".
These credits can offset the actual capital gain taxes that get triggered when you dispose of the asset and *realize* the gains in the future.
5/ Phase in Limit
Annual min tax liability would be reduced to the extent it exceeds (Min tax liability + uncredited pre-payments) > (2*20% (TP wealth β 100M)
(Sorry, even I'm confused here. Have to wait until we get further guidance)
Annual min tax liability would be reduced to the extent it exceeds (Min tax liability + uncredited pre-payments) > (2*20% (TP wealth β 100M)
(Sorry, even I'm confused here. Have to wait until we get further guidance)
6/ IRS reporting
You have to report the total cost basis, market value, and liabilities of assets you own to the IRS annually.
There are two types of assets: tradable assets & non-tradable assets.
You have to report the total cost basis, market value, and liabilities of assets you own to the IRS annually.
There are two types of assets: tradable assets & non-tradable assets.
6.1/ For tradable assets -> use market data for valuation. Ex:- stocks & crypto.
For non-tradable assets -> no need to get a formal valuation. Use greater of the original or adjusted cost basis, the latest valuation from the last funding round, or other methods approved.
For non-tradable assets -> no need to get a formal valuation. Use greater of the original or adjusted cost basis, the latest valuation from the last funding round, or other methods approved.
7/ Illiquid taxpayer (IT)
IT is a taxpayer with tradable assets contributing to less than 20% of networth.
ITs can *elect* to pay the 20% tax ONLY on unrealized gains applicable to tradable assets such as stocks and crypto (good news)
But, there's a catch here.
IT is a taxpayer with tradable assets contributing to less than 20% of networth.
ITs can *elect* to pay the 20% tax ONLY on unrealized gains applicable to tradable assets such as stocks and crypto (good news)
But, there's a catch here.
7.1/ If you elect to do so, ITs will be subject to a "deferral charge" when they actually sell those non-tradable assets.
This charge would not exceed 10% of unrealized gains.
This charge would not exceed 10% of unrealized gains.
8/ What do I think about this ridiculous proposal?
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