Digital asset investors embrace a bullish optimism

Investors embraced a bullish optimism on pro-digital asset policies from the incoming Donald Trump administration, with the price of Bitcoin (BTC) soaring since his presidential victory earlier this month, hitting multiple milestones on its way to $100,000.

It feels like the days of Tulip Mania for Bitcoin are back as its price surpassed $98,800 to touch a new record on Nov 21 after the US Securities and Exchange Commission announced Chair Gary Gensler will step down effective Jan. 20, the day Donald Trump is scheduled to be sworn into the White House. The Bitcoin fever is hot and global once again.

Bitcoin payments to sportsmen

In an unprecedented development for UAE’s sporting scene, the Bitball Flag Football showdown—in the first-ever NFL event featuring some of the biggest names in American football,  the players will be rewarded in Bitcoin. Organized through the International Federation of American Football’s 75 national member federations, flag football recently became the official game of the NFL Pro Bowl and was confirmed as part of the 2028 Summer Olympics. 

Leading the charge is eleven-year NFL veteran and Super Bowl Champion Russell Okung, a prominent advocate for athletes’ financial sovereignty and the first professional athlete to receive his salary in Bitcoin. George Mekhail, Vice President of Operations at BTC Inc., commented on the topic:

“The flag football match at our Bitcoin event is no accident—it embodies the collaboration and resilience of the Bitcoin community. Russell Okung’s push to empower athletes with Bitcoin is a forward-thinking vision that moves us more into mainstream consciousness. We’re proud to host this mission at the Bitcoin Conference, bringing purpose and excitement to our attendees.”

The star-studded lineup also includes over 22 football legends, such as Antonio Brown, Le’Veon Bell, Johnson Bademosi, Jurrell Casey, and Jared Evans. The roster further includes celebrated players such as Dez Bryant, Dontrelle Inman, Mohammad Sanu, Randell Johnson, Michael Thomas, Craig Robertson, and Wesley Woodyard, representing an array of talent from across the NFL. 

The Bitball Flag Football game will be part of the official lineup of side events at this year’s Bitcoin MENA 2024, December 9-10, 2024, the largest global gathering of Bitcoin investors, developers, and stakeholders. All Bitcoin MENA ticket holders will have free access to watch the Bitball Flagg Football match live on December 10 at the Al Nahyan Stadium in Abu Dhabi starting at 7 pm. Separate tickets for the event that blends sports, technology, and digital assets will be available for purchase at PlayBitBall, which will be distributed globally via live streaming on Bitcoin Magazine’s platform, Rumble, and YouTube, allowing global audiences to witness this unparalleled fusion of Bitcoin and professional football, that marks a cultural milestone for the UAE as well as the wider GCC region.

Digital asset taxation

Some good news for the Bitball Flagg Football players is that the United Arab Emirates has no income tax and has recently abolished value-added taxes on digital asset transactions. By exempting individuals and businesses from a VAT on the transfer and conversion of digital assets, the UAE has positioned itself as a potential hub for digital currencies (see Coincub Tax Report here). So, the players will not be subject to double taxation on their digital asset income in the absence of a  UAE and the US Income Tax Treaty. 

Nevertheless, the Bitball Flagg Football players will be subject to worldwide US taxation on their digital assets, which are treated as property and are subject to income tax or capital gains taxation. 

Digital assets taxed as income in the US

The IRS provides guidelines on when digital assets count as income rather than a capital gain. Transactions that are viewed as additional income subject to income tax include:

• Getting paid in digital assets (such as the Bitball Flagg Football players).
• Mining digital assets (on a hobby level).
• Receiving an airdrop.
• Receiving new digital assets from a hard fork.
• Staking rewards.
• Referral bonuses.
• Earning interest through lending protocols.
• Earning new liquidity pool tokens, governance, or reward tokens on DeFi protocols.
• Learn to earn rewards.
• Watch to earn rewards.
• Browse to earn rewards.
• GameFi rewards.

Digital asset taxation as an investment in the US

Digital assets that are held as investments are subject to taxation at different tax rates.  Short-term gains (held <1 year) are taxed at 10%-37%. If you held a particular digital asset for more than one year, you’re eligible for long-term capital gains (held >1 year) at 0%, 15%, or 20%, depending on your taxable income and filing status. NFTs deemed collectibles may be taxed at 28%.

Digital asset losses can offset gains and can reduce ordinary income by up to $3,000. Any unapplied losses can be carried forward to future tax years until they’re fully used.

The IRS does not let digital asset investors claim lost or stolen crypto as a capital loss, so if a digital asset investor lost a digital asset due to a hack, scam, or loss of private keys—the investor is out of luck, and the best thing is simply to write it off.

Digital asset tax breaks

American digital asset investors can benefit from a few tax-free allowances that can help them pay a little less tax:

• Gifting digital assets under $18,000: You can gift up to $18,000 in digital assets per person tax-free (for 2024). This is known as the annual gift tax exclusion. This can help you take advantage of lower Income Tax rates in your household and pay less tax overall. If you gift over this amount, provided you’re under the lifetime gift tax exemption of $13.61 million in 2024—you won’t need to pay gift tax. However, you may need to file Form 709 (more on this below). For 2025, this increases to $19,000 with a lifetime exemption of $13.99 million.

• Capital gains tax-free allowance: If you earned less than $47,026 in 2024 in total income (including your digital asset gains), you’ll pay no capital gains tax on long-term gains. For 2025, this increases to $48,350.

• Long-term capital gains tax rate: If you hold your crypto for more than a year, you’ll pay a lower long-term capital gains tax rate of between 0% and 20%, depending on how much you earn.

How to report digital assets on tax returns

A digital asset owner files digital asset taxes with their annual tax returns by answering the IRS’s digital asset transactions question. A variation of this seemingly innocuous question appears at the top of Forms 1040, Individual Income Tax Return; 1040-SR, US Tax Return for Seniors; and 1040-NR, US Nonresident Alien Income Tax Return. The question was also added to these forms: Forms 1041, US Income Tax Return for Estates and Trusts; 1065, US Return of Partnership Income; 1120, US Corporation Income Tax Return; and 1120S, US Income Tax Return for an S Corporation.

The IRS asks this question with variations for corporations, partnerships, estates, and trusts: 

“At any time during the year, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” Yes or No? The box indicates that they had digital asset tax reportable transactions.

Report digital asset disposals, capital gains, and losses on Form Schedule D (1040) and Form 8949.

Report digital asset income on Form Schedule 1 (1040) or Form Schedule C (1040).

Report digital assets held in foreign exchanges, such as an exchange in the UAE on FATCA Form 8938 and FBAR FinCEN Form 114.

Digital asset tax disclosure deadline

The US tax year is from January 1 to December 31. Digital asset tax deadlines match traditional assets: April 15 for most individuals. If a digital asset investor is a US expat, then you have until June 15.

If you filed for an extension to file your taxes using Free File or Form 4868, you’ll automatically have an extension until October 15. 

Can the IRS and state tax departments track my digital assets?

Yes—both the IRS and state tax departments can track digital assets. The  IRS has won cases against Coinbase, Kraken, and Poloniex, forcing them to share customer data, and the IRS has cross-border reach for tax evasion. 

This February, the IRS levied its first stand-alone crypto tax fraud case, which led to a guilty plea by Frank Richard Ahlgren III for filing a false tax return underreporting gains from selling $3.7 million in Bitcoin. USA v. Ahlgren was the first crypto case with tax evasion allegations unrelated to another crime; it is now also the first stand-alone crypto tax fraud case to result in a guilty plea. Ahlgren faces up to three years in prison.

At the state level, billionaire Bitcoin bull and MicroStrategy co-founder Michael Saylor, who evaded more than $25 million in local income taxes from 2005 to 2022 through falsified records and statements, paid $40 million to settle a lawsuit alleging he committed massive local and state tax fraud by lying to authorities for years about where he lived.

Ahlgren, Saylor, and the DOJ’s case against Roger Ver (also known as “Bitcoin Jesus”) underscore the IRS, State Tax Department, and DOJ’s commitment to prosecuting digital tax evasion. The IRS indicated earlier this year that its audit focus would be on digital assets and high-network individuals. In light of these developments, digital asset owners and investors may wish to reevaluate their tax reporting and filing obligations to ensure compliance.