📜The new IRS regulations aim to alleviate the tax burden for CeFi investors

The Internal Revenue Service (IRS) recently issued a new notice that is a significant benefit for cryptocurrency investors using centralized financial services (CeFi) in the United States. The notice will take effect on January 1, 2025, and will automatically provide users with tax policy relief!

The new tax regulations require CeFi brokers to report our cryptocurrency transactions. This may sound a bit complicated, but there is no need to worry, as the IRS has taken this into account and provided a temporary solution. This relief measure allows users to bypass the default first-in, first-out (FIFO) accounting method, giving investors more flexibility during the transition period.

Shehan Chandrasekera, the tax strategy director at CoinTracker, explained that this relief will take effect automatically, and we currently do not need to take any action.

However, starting in 2026, we will need to work with brokers to choose an accounting method together, and most brokers support multiple accounting options, making tax compliance easier.

It is worth noting that if holders do not choose their preferred accounting method (such as highest in, first out (HIFO) or specific identification (Spec ID)), brokers will default to using the first-in, first-out (FIFO) accounting method.

This default accounting method may increase tax obligations, especially during bull markets. But fortunately, most brokers currently support multiple accounting options, making tax compliance easier.

At the same time, it is recommended that everyone keep detailed transaction records or use reliable cryptocurrency tax software to ensure our reports are accurate. Failing to do so may result in the default use of the FIFO method, which may not be the desired outcome.

Therefore, Chandrasekera advises users to plan ahead to ensure that the broker's accounting method matches the user's tax software, to avoid unnecessary tax troubles.

By the way, a few days ago, the IRS also introduced a new rule that includes DeFi platforms in the reporting of transactions.

This decision has sparked some controversy, as some institutions believe it violates and exceeds the authority of the Treasury Department. Nevertheless, this accounting rule indeed brings great news for CeFi users!