Transcript:
00:04
All right, we are live. Hello everyone, welcome to tonight’s web class, Crypto Taxes Make It Easy. Got a couple of exciting guests with us tonight, but before we really get into anything, do me a favor. And since we’ve got a lot of people joining us, unless we waste our time and energy talking to ourselves, if you would go ahead and let me know if you can hear us, maybe just type who you are, where you’re joining us from, and just put that in the chat.
00:33
And that will help us know that we’re not talking ourselves. So, you know, we’re going to get into some cool stuff tonight. I know we’ve got a lot of really great questions that are coming in from the emails we sent out to set this up. I had a lot of people register. So we know this is kind of a hot topic. All right. We’ve got North Florida. Oh, this is what I get. Take my glasses off because they have a glare and then I can’t read anything.
01:02
The joys of aging. All right. All right. We got people coming in from all over Longview, Texas. I have a stepsister that grew up there. Vicki from Georgia, North California, Texas. All right. Sounds like we’re in business. Got a lot of people jumping on here. So this is always exciting. So Brian Ernest, you’re here joining us with a
01:30
with Mike Ring, who I’m having trouble getting the ability to join right now. But Mike, we may have to just get him in the same room with you, Brian. So sorry to throw the wrench in there, guys. Everyone who’s watching, hey, I guarantee you this is live. As you can see, even with the tech challenges and all. But Brian and Mike are going to get into all of our.
02:00
crypto tax questions. This is one of those areas where, I was thinking about this, there are certain things that you don’t, maybe you don’t mind doing for yourself. Some things you definitely wanna pro for. I think when it comes to like performing surgery, you probably don’t wanna do that yourself. And I kind of put taxes in that same category where the IRS did hire 80,000 new agents and for some reason they all needed guns. So,
02:29
But in all seriousness, taxes is one of those areas where I firmly believe and practice in my own life that you bring in the experts, you let them be an expert of what they do in crypto taxes. There’s just so many questions out there around that. You know, people get behind on their taxes. So I’m excited to hear what what Brian and Mike had to share with us tonight. There will be a Q&A at the end.
02:56
So make sure that as you have questions, use the chat to ask those questions. Brian and Mike are gonna be generous and stay on and give us as much time as they can to answer those questions. Let’s see, oh yeah, and we did, we even did something new this time. We prepared a poll for everyone. So while Brian and Mike are introducing themselves here, if you would just go ahead and.
03:24
give us quick answers to the poll that we ask and this will help them really know who is on the call, why they’re on the call, help them just do a better job of tailoring their information to us. All right, so with all that mad rambling out of the way, Brian, Mike, thank you so much for your time. Really appreciate you being on. If you would just give us a background on what your background is, how you wound up doing crypto taxes and then when you’re ready, just jump right into the presentation and we’ll…
03:53
We’ll do that question and answer at the end. Sure, thank you for having us. We really appreciate it. And thanks for everyone for joining. Yeah, so my name is Brian Ernest. I’ve been in traditional finance for the last 13 years. And then what had really happened is I was in crypto and DeFi and we figured out how long it actually took to do our taxes and how complicated it was. And so that was the premise of starting this whole business. And we’ve been working on it for years and years trying to do a lot.
04:22
formulate the perfect scenario, but I think we got it now. Yeah, my name is Mike Ring. I’ve been in public accounting for the last 14 years. Brian and I grew up with each other, so obviously we kind of got into crypto and DeFi and all that together, which is kind of a mess, even though with our backgrounds, you would think we’d be able to figure it all out. So that’s what we set out to do. And that’s where we got to start in the company, Blockchain Crypto Tax, Brian. Nice. So what we really do is,
04:52
Anytime that you’re on, let’s, when you get off of a decentralized, off of a centralized chain and you actually do self custody or anything like that, your cost basis and 10 99s and stuff, you don’t actually get those and the cost basis doesn’t carry over. So you’re really on the options are you can use like a, uh, do it yourself calculator site. And then once you surpass the complexities of that, there, you were usually only let’s say 60% accurate. Um, or you just want somebody to actually
05:21
take care of it for you and put hands on it and have a face-to-face meeting over the internet. That’s what we do and we do it in a cost-effective manner. So that’s the whole basis of our business. Thanks. Yeah, that’s your real problem. Yeah, it is. So we’ve kind of set out to reduce some of the connections where in crypto everybody’s a little bit skeptical.
05:47
you hook up your wallet to one of these tax calculators and sure you might just be signing a transaction to look into your wallet, but you’re not really sure. A lot of it’s coded language. And so our model gets away from that where we just say, provide us your CSVs since the inception of your account, from your exchange, from your Ethereum wallets, from your Bitcoin wallets, right? We want it all and send it over to us, no personal identifiable information. We take all that, we aggregate all the data through our process.
06:17
And we import it into our software and get you out here in 949. If there’s any questions, obviously, there’s a little back and forth, just like a traditional accounting firm. We want people to know they’re taking care of another, so somebody on the other side of the computer that’s looking out for them. That, you know, it’s not just, you know, getting hammered over the head with a 3000 dollar bill to do 10 transactions. So, yeah, yeah.
06:45
everybody out there knows what the do-it-yourself sites are like. So another thing that we’ve really been able to do by bridging that traditional finance gap to, I’m sorry, I just saw a question for a CSV. A CSV is like an Excel file. So all it is is just your transactional data. So it’s going to say, you know, buy here, sell here at this date for this much. And that’s the information that we use. So it’s only from a transactional data standpoint that we do it.
07:14
All centralized exchanges have a way for you to go into your history and export that data pretty easily in a really painless manner. And same with if you’re on decentralized wallet, if you’re on the Ethereum chain, if you’re on our Binance Smart Chain or anything like that, we’ll be able to get your wallet address, put it in our data and actually export those for you. Yeah, so the 1099s.
07:44
You do get one from each centralized exchange, as long as you KYC, but not all of the exchanges will do it. So. Right. Okay. Yeah, I think that covers that. But all right, so one of the things that we really figured out how to do, which is something that affects mostly everybody is when you have rugged coins or rugged NFTs. So there’s a rule in finance that you have to have something that you receive on the backend. So.
08:13
Let’s talk in terms of traditional finance. Let’s say that you bought a stock that went out of business, right? You bought Enron. Enron goes out of business. So what happens is you spent $1,000 on Enron stock, and then that company goes out of business, and that stock’s worth zero. Well, you have a broker that you can go to, and then they will make a market for it, and just take it, and then…
08:41
that counts as a zero transaction on the backhand side. So then you could actually write off that tax loss. Well, all of those NFTs and all those coins that are all rugged, you don’t actually get to write these off because there’s no market for you to dispose of them. So that’s a product that we just came out with, that we just rolled out with. And I’ll let Mike explain a little more. Yeah, I think over the past couple of years with this bear market, everybody’s got some…
09:08
Tokens or entities that they’re hiding away that they’re not proud of or that they’ve lost a lot of money on. So we want to be able to take advantage of that when we file your taxes. And so you spend a thousand dollars on a certain NFT and now it’s worth zero. I’ve got plenty of them. My hidden folder and open see you send that to us with twenty dollars. So we can cover the cost of the gas fees. We send you back a dollar of whatever.
09:37
native token it is, and then we’ll send you a certificate to your email that says, hey, this transaction was specifically for this purpose. Now, it’s actually written in the tax code that I just took a lot of courses for that. That is an actual legitimate IRS transaction that they will say, all right, yeah, you did this. If you go the other way and try to do it yourself and say, look, I’ll just send it to another wallet I own and I’ll write it off. They connect the dots at some point.
10:07
That’s when you kind of get in a little bit of trouble. The IRS is trying to catch up and connect the dots on everybody. So we’re trying to get ahead of the game with everybody and get everybody compliant and not have to worry about having the anxiety about their taxes. Yeah, yeah. So, all right, so let me make sure I understand this correctly. So when it comes to like a capital gain or capital loss, you don’t actually realize that until you transfer the ownership to a third party.
10:37
And so that’s what you guys have created as a way for people to transfer a token that has gone to zero, transfer that ownership over to you. And then that allows them to take the capital gain and that I mean, sorry, the capital loss and use that to offset other capital gains. Is that right? Correct. You had that perfect. And the best part about it is, is when you when you transfer it to our wallets, you don’t have to interact with that protocol anymore.
11:06
which probably had some sort of scam related to it anyway. So they completely wiped you off from interacting with that token, which is phenomenal. So it creates an extra layer of security. So our goal is to make sure that you never have any issues with any of your security or anything or any chance of even having some kind of compromise. So we call our system trustless. Yeah, nice, yep. Cool.
11:36
So what about the, all right, so what about the quantity of transactions? If you trade with bots and you have thousands of transactions, it’s obviously gonna cost you significantly more to get it done because it’s just how much manual labor that we have to do. We do it in increments of, we do it in increments of a thousand transactions and four wallets, but once you start building past those increments, we give discounts on that stuff. We’re not gonna charge you.
12:06
We’re not going to overly charge you for any of those types of things. Yep. Okay. So you want to run through a kind of process for onboarding is and everything like that. How we model ours. Yeah. Yeah. Okay. Perfect. So what we do is you’re going to go on, you’re going to, you’re going to sign up for a free consultation, right? So we’re going to have a conversation on Google meet.
12:36
and you can have your camera on, you can have your camera off. We don’t want to know your name. We don’t have to know your name. You can create a new Gmail account, you know, one, two, three, four Gmail, if you want to interact with us that way. We’re going to sit there. We’re going to talk to you about everything that you have going on. What chains are you on? What crazy DeFi stuff were you on? What were you doing? We understand 99% of it all. We’re going to be able to do it on every single chain that you have. It’s not a big deal.
13:06
And then we’re gonna have a consultation, we’re gonna figure all that out, and then we’re gonna give you a ballpark price based on that amount that we set on our $295 tier range. And then if everything’s good to go and we’re a good fit for each other, then we’re gonna send you a welcome email. You’re gonna go and you’re gonna collect the wallet addresses and the CSV files for any of the exchanges you were on or any of the non-EVM chains.
13:35
and all the EDM chains, you’re gonna send us all the wallet addresses, all the Bitcoin ones. You’re just gonna send us the wallet addresses and we’ll pull it from the blockchain. And then we’re gonna start our tax preparation on that side after you email that to us again. No personally identifiable information is gonna be on any of those CSVs when you pull them. And then we’re gonna go through the whole process. We’re gonna go back and forth with you and say, oh, you forgot this one or,
14:04
You know, what is this crazy thing that you did explain it to me or where did this transaction come from? This one’s really affecting your. You know, your cost basis and then as soon as we finish all of that back and forth. Then we’re going to send you your bill and.
14:21
Then we’re going to send you the bill and then we’re going to do some 89. 49 to you. And let me so, I guess we’re kind of jumping through the whole scheme of what the whole thing of what we’re preparing right there. I guess to go back and just for an educational standpoint. Generally, what happens is you on board through a centralized exchange coin base or finance or crack and somewhere.
14:49
somewhere along those ranges and that’s your first intro into crypto. Then you buy your Ethereum, your Bitcoin or some other altcoin and then when you have another layer where you add a self-custody wall which means you are going to take the coins you bought on a centralized exchange, transfer them to a wallet that you only have the keys and access for. That’s when you kind of get in the decentralized world.
15:13
And that’s where things get a little murky because you’re losing all your call spaces transactions are happening so frequently. And so we would take a CSV from the centralized exchange. From the metamask wallet or whatever self custody wall generally we can take whatever your public wallet addresses and that doesn’t tie back to any personal information to you because it’s on a public ledger, but there is no.
15:39
there’s no identifiable information attached to it. And then we can pull the transactions from whatever chain we are on in order to kind of make this more of a seamless transaction in order to get everything uploaded for you.
15:52
Right on. Can we can we maybe so I love that you guys jumped right in and started answering questions. You can see they’re coming in like there’s going to be various levels of sophistication with people on here. And so you know, maybe we could back up just a little bit and kind of start with some of the basics like okay, when it comes to crypto and you know,
16:17
taxes, is there really any difference to the way crypto is taxed over, say, stocks or commodities? They’re being classified as all these different things, depending on what the token is or what the coin is. So what is the broad 30,000 foot view of how crypto is viewed by the IRS?
16:43
Sure, so crypto is viewed by the IRS in our opinion by, it’s more of a commodity than it is a security, it’s how they try to classify the majority of it. So you’re going to be taxed on every single transaction that you make, except for a wallet to wallet, a wallet to wallet transaction. So commodities, property, securities, they all kind of flow in the same category in a sense, but.
17:11
Basically, you’re only gonna be charged on what your cost basis is versus what you sell it for. Right on, so I bought it for a dollar, I sold it for two. I’ve got a $1 gain. If I bought it for a buck, I sold it for 50 cents. I lost 50 cents. Okay, that’s- We only wanna see, yeah, and it’s only gonna be taxed as short-term or long-term versus 12 months versus over and under 12 months. Right, so those same kind of rates apply. Okay. Yeah.
17:42
is your tax that your ordinary income rates long term, if you hold it for over a year, you get more beneficial tax rates generally, it’s gonna be around 15% for most income levels, which gives you a little bonus if you’re a hodler pretty much. And then there is like DeFi stuff where you can stake and receive rewards that count as income as well. Yeah, so let’s talk about that. Like what about yield on your staking like from DeFi? How is that?
18:12
treated by the IRS. So the yield would basically be, you know, like putting it in a bank account and saying, hey, you’re gonna get 4.5% for the next six months, right? You’re gonna get interest and income when that pops through. So that’s gonna come through on, you know, your schedule B of your 1040, which populates interest and dividends. It’s a little bit different of a form because it’s technically a different transaction because you’re just, you’re adding an asset just to get yield from.
18:41
And it’s considered interest. I guess the other, some other added avenues where there’s a lot of airdrop talk going around. A lot of people made a lot of money on Jupiter from Solana where there are these opportunities where there’s money to be made from certain airdrops and things like that. And that would be classified as just other income, right? It was, it’s taxed at the moment you received that,
19:11
It’s not when you sell it. So when you get that airdrop, it’s taxable at that moment at that price. Okay. Gotcha. Okay. And I’m probably going to ask some of these really dumb basic questions, but there’s no such thing as a dumb question. I always like to challenge that theory by asking dumb questions. Please. Right on. So let’s say I’ve got…
19:41
You know, one coin that 10 X one coin that went to zero, you know, like over like, you know, each one of those is kind of treated the same. So at the end of the day, though, is it’s really going to look at my net gain or loss across all those positions, like as in what I realized, either the gains or the loss that I realized. And that’s what my tax is going to be based on. Okay. So that’s going to be your summary info, right?
20:09
The IRS is going to request a detailed info of all the trades. And that’s what the 89-49 essentially is. And that populates what is your schedule D, which shows your short-term and long-term gains or losses. So what you’re saying is, at the end of the year, the net is what’s shown on that form. But the IRS is still going to know, how did you arrive at that net gain or loss? Yeah, yeah. And that’s where the fun comes in with CSBs.
20:36
Exactly. That’s where it comes. I’m the kind of guy that I tend to zoom out to the 30,000 foot view place. And then my wife and people on our team are really the ones who really drill down into the how does it work. So I like to understand the big picture. To me, that’s really useful to understand. And then the mechanical details will make a lot more sense. So all right.
21:06
It kind of at that level, it really, you know, it’s simple, but the devil’s in the details, right? So what is like, do you have any insight on what is like the IRS’s view on interacting with people who are filing tax returns that involve crypto? Like, does crypto send a red flag up to the IRS? Or you like more at risk of being audited just by owning it?
21:33
What are some things that you can do with regards to just staying low key and not popping up on the IRS’s radar as a threat or maybe not a threat, but like an interesting person? Yeah, I think your main thing is just to stay compliant, right? Anytime you have these transactions going on, you just want to be on top of it. When you get behind, that’s when things start to get a little murky for you. And we’re seeing a lot of that.
22:01
in our day to day is that we’re getting a lot of people are like, I haven’t done my taxes for three years. Please help me out, please help me out. And it’s just, if you were to work a job and have a 1099 that was reported to the IRS, you’re still gonna report your expenses, right? They’re gonna see some of these proceeds from exchanges and we’re gonna come through and figure out your cost basis for you. I think what they are just looking for right now is you’re giving a…
22:32
pretty much your best shot at presenting what actually happened during the year, the full picture of it, right? You’re not hiding anything, they can’t go track down and say, well, you didn’t report this wallet, we can see that it’s connected. And they will get to that point. You know, there are some things out there, there’s blockchain tracing softwares and things like that. You know, the IRS is using it on the criminal side, but not really the civil and audit right now. But that’s where,
23:02
You know, our thought process was like, we’ve gone through this. We want to take the pain points away from clients and say, this is why we started the company. We understand it. We know what we need. We know what they’re looking for. We’ve had discussions with the IRS this last July. And, you know, we, we think this is something that’s an added value to anybody. That’s, you know, facilitating transactions with crypto.
23:28
Right on, right on. Okay, okay, good deal. Let’s…
23:38
All right, so with all that said, I think maybe it’s time we can just kind of jump in and we’ve got some good questions that I’m seeing coming in here. They’re spurring some thoughts for me. So this is one of the questions that I had myself that we also just got in from Karen. She’s asking, is there a way to make hacked cryptos tax deductible? So let’s say your wallet got hacked, you got cleaned out. Is there a way to take a tax loss on that?
24:07
So that’s a little bit of a tricky situation. Currently the IRS has kind of viewed some of that as casualty losses, right? Which aren’t really as advantageous if you’re a hacked wallet. Yeah. Yeah, exchange, you could also, you know, there are some ways where, you know, a lot of people, you know, were already made off and everything like that, where basically you lost your money in a Ponzi, where there are some routes where people are trying to take like, hey, I lost my money in this, I should be able to take the full loss for it.
24:37
I think, you know, it’s we try to lean towards the conservative side of reporting just to make sure we aren’t drawing any red flags or aren’t causing any additional stressful situations once the IRS takes a look at it. And that’s the thing with crypto is all this, you know, you’re dealing with such a new financial system that the IRS is figuring out the questions with us and everything is.
25:04
is a bit of a gray area that we’re all working through towards some more actually defined rules. Okay, gotcha. Okay, so not a great answer there, not in the sense that it wasn’t right, but it’s just not what we want to hear, right? Exactly. No, I mean, right? You know, I don’t know how that works if someone breaks into your house and steals your stuff, but you know, it’s a tough one, man. We get some of these hard…
25:32
heartbreaking stories that come in, the people that got scammed and there’s just no good answers. It’s really unfortunate. Same question or similar question came in. What about say like a DeFi Ponzi scheme if you lost money in a crypto fraud essentially? Like is there anything you can do there?
26:02
Can we get a little more clarification on what they mean by DeFi Ponzi scheme? Is that kind of like, you know, one of those DeFi positions like Olympus that’s like, hey, we’ll give you a million percent APR and then it collapses all at once? Or is it something where your money’s just gone?
26:19
James, that’s your question. So if you could maybe just clarify a little bit about what you mean by DeFi Ponzi scheme. We’re getting some feedback in the comments here that you might be able to file either the, up to like a $3,000 loss a year to hacks or fraud. Yeah, the $3,000 loss is the maximum you’re allowed to take.
26:49
annually right you’re allowed to you can write off all your losses against your gains but the maximum amount of loss you’re going to get is a three thousand dollar loss from your right but same thing um i mean it’s it’s a gray area they haven’t defined whether hacked as you know is it a casualty loss like someone came in your house and stole your money or is this an actual investment loss um and that’s right you know there’s different scenarios but there’s no real
27:18
Yeah, defied answer. So, and we did get an answer back from James, he’s saying something that got rug pulled on you. And so this to me is where like, one of the things that I thought was most exciting about what you guys are able to do, with the fact that, okay, so the company, maybe they were totally fraudulent, maybe it was the biggest scam ever, but they haven’t been convicted of anything. What are you gonna do? You’re gonna wait to take that $3,000.
27:46
fraud loss, once they’re convicted of something. Well, without even going into all of that, doing what you guys were talking about earlier, I can take and I can transfer that asset that’s not worthless over to you guys. So why don’t you just run through that real quick? So let’s use maybe this specific example of a coin, there’s a DeFi coin that promised a massive yield, but ultimately
28:16
just went to nothing. What would I do in that case? So you still have to own the token in your wallet. That’s the key. As long as you still own that token in your wallet, then you can transfer us that token. And essentially what you’re doing is you’re selling us that token for a dollar. So it’s acting like it was an exchange there. So we’re just creating a market for a non-marketable token. And now you’re able to write off, let’s say it was $1,000 and now you’re getting a dollar. Now you’re able to take that, realize that loss of 999.
28:46
So it’s super simple, just keep it super simple in those terms, and that’s the way you could apply that scenario. So any of those rug pulls as long as you still earn the token. Nice, nice. And I believe this is probably really tightly tied in with this. Woody’s asking, what about losses on node projects that were essentially Ponzi schemes? So let’s say you earned rewards by, you know,
29:15
hosting something on a server or on using spare cycles on your computer. And so your investment was the ability for that project to use part of your computing resources and you earn tokens in exchange for that. Is this only something that you bought with US dollars or some other currency?
29:37
as long as you created cost basis. Yeah. We would have to nail down where the cost basis came from. Yeah. And if you’re… And we backdoor kind of, I think, hey, how did you get into this? Where did the money come from? What did you pay to get into this? Are you still able to make a transaction? I guess for us, we’ve dealt with a lot of people with it was called Olympus, our own.
30:05
and you staked in, you received a stake token back in your wallet, right? That gave you ownership of what was in this yield bearing protocol. And when it collapsed, you still had the stake dome. So we understood that stake dome call spaces came from when you received that asset. So you’re able to send us that one and we’ll say, all right, here’s where we got the call spaces from. Here’s what we’re going to take as your loss on the sale when we facilitate that transaction.
30:34
Yeah, so it’s been a lot of those. It’s been a ton of those spin offs of that. All the forks of those. All the forks of Olympus that are pretty much always zero. So I would just like everyone who’s listening to realize that what you’re watching is how these things are gonna get worked out because this is so new. Like until you’re the only group that I’ve ever heard of where you can send those tokens that you’ve had rug pulled that have gone to zero and you can.
31:02
now transfer those over to someone and claim that as a loss. Um, and, and so this, you know, what, what I’m hearing is really encouraging and exciting, um, because, you know, the fact that you’re thinking about how you can turn it into a tax loss within the rules, and it makes me think of that old, um, you know, kind of a joke about how do you pick a good accountant? If you ask them what two plus plus two is, if they say it’s four,
31:32
You know, they’re, oh man, I’m butchering it. If they say it’s five, they’re too dumb, don’t hire them. If they say four, don’t hire them for some other reason. But if they ask you what do you want it to mean, that’s your guy. Yeah. So the other part of doing these transactions, we have specific wallets that are identified for it. So when we know, hey, you’re our client, you’ve come to us, we’re gonna take these losses, right?
31:58
We’re gonna look through all your transactions and say, hey, look, you’ve got a bunch of gains, right? And we’ve also identified assets in your wallet that are worthless. Let’s try to minimize your gains before the end of the year. You send us either the NFT or those tokens, we send you the dollar back. When you’ve interacted with that specific wallet, it notes it in our system that this is a rubbed token transaction and will automatically integrate and say, hey, that’s a loss, right? So we’re not.
32:26
you’re not going anywhere and wondering like, what was this transaction that we did with these people? How did this? And you’ll get a receipt on the backend, but that’s kind of, you know, when we’re gonna go through these bull market scenarios and when everything gets better and people start to have, you know, not like the last three years that we’ve dealt with, but they have gains and their income that are coming through and everything is kind of euphoric. At the end of the year, we wanna say, let’s…
32:51
let’s minimize these taxable gains as best we can. So everything that you had from 2021 and 2022, let’s ship it out. And then, you’ll be a little happy camper at the end of the year when you have less of tax liability and you’ve done it the right way and you’re fully quiet. Yeah. And so we’ll do that for all the clients on in December of every year. So you can make that decision before the end of the tax season.
33:19
Good deal. All right. Let’s keep going. Appreciate the answers. Let’s keep going with some of these questions. Yeah, let’s see. Is there a crypto wash transaction? Does that make sense? Yeah. So what that is, is in traditional finance, let’s say that you own Apple when Apple, you know, goes down and you have a tax loss in there. And on December 31st, you sell it or on
33:47
December 15th you sell it and then December 16th you go back and buy it to get that realized tax loss. They don’t let you buy it back within 30 days and they call it a watch sale. So that’s what a watch sale is. Currently in crypto they have not defined any watch sales. And so that is something that you would be able to take advantage of where at the end of the year you say, I had this Bitcoin. I bought it at $10.
34:15
45K is worth 30K. I still believe in Bitcoin. I’m still going to hold this long term, but for this current year, if I sell it, I’m going to pick up a $15,000 loss, but I’m still going to hold basically the same amount of Bitcoin. Right. Currently, that’s how it is. I will say, fully expect that to change, but with the amount of transactions, you’re allowed to facilitate on your own. It’s going to be almost impossible for the IRS to create a real rolling.
34:43
on it because there’s just so many transactions and so little of tracking of these wallets with just regular institutions. Right on, right on. So you can play under the current rules and no issues. And if they change it later, then you have to play by those rules then? Yeah. Okay. So can worthless NFTs be written off? That’s the absolute easiest, one of the most, you know, the one that we see the most common because everybody who’s on the NFT craze.
35:11
All of them are pretty much worthless. And didn’t you have some trick where you could balk them? Yeah, so your worthless entities can only be written off if you create a transaction and you are able to sell them to a third party, right? You can’t just write them off and hold them in your wallet because you haven’t made the actual taxable transaction. So what we’ve told clients is, hey, go on OpenSea, you can…
35:40
we’ll identify 10, 15, 20, 50 NFTs that are worthless. You can select them all at once in one transaction. You can send them to the wallet that we’re saying, hey, this is identified as a NFT lost harvester right here. We’ll send you a dollar back to complete that transaction, give you a certificate, and you’ll be able to realize that loss at that date and time, right there. Okay.
36:11
All right, we’ve got lots of questions coming in. I know, we’ve got the small screen in here too. I need it on a big screen. Yeah. If you catch me looking around, it’s because I’ve got multiple screens here. I’m trying to get all the questions. Does burning an NFT create a transaction due to the return of this small fee? I’m not sure. Is there a debt address that sends you a small fee in return? I haven’t encountered that currently.
36:41
receiving anything in return for it, then no. If you have a protocol that you know of, shoot me an email, my getc I’d love to take a look at it as well, but unless there is a two-sided transaction with a third party, it doesn’t count as a loss. Right on, right on. Real quick before, I appreciate you guys continuing to go. For everyone on the call, Brian and Mike have
37:11
very generously offered to set up a consultation, a free consultation where you can get on and you can really dive into the nitty gritty details of your situation because there’s so many one-off situations. We’re going to do our best to get through a lot of questions tonight. I want you to walk away with questions answered. But I’m going to go ahead and drop a link in here so that you can set up that free consultation. It should be showing up in the chat sometime in the next second or two.
37:41
So, you know, let’s continue down this path. But, you know, let’s also, you know, if you have to drop off or you’re starting to realize that the answer to your question creates another question, which then might create another question, you know, again, like, you know, getting on the phone with these guys and just, you can have a conversation and really quickly get down to the heart of what you’re trying to understand. And then they do have a really, really,
38:10
reasonable rate with which they’ll charge a small fee, what it’s like to, like $297, is that it, to do your crypto taxes for you. Now, there are some limits on that, but for most people, that’s going to get your crypto portion of your tax return handled for you turnkey. So with that said, I dropped that and we can jump back in here, unless you guys want to
38:39
We can just keep running with questions. We very much appreciate it. We’re looking forward to all phone calls in all situations. This isn’t just something we’re doing because it’s a business. I mean, we thoroughly enjoy just being involved in cryptocurrency, and especially on days like today where you pass a Bitcoin ETF, which furthering the cloud share, more credibility to what we’re doing. You can tell your mom and your dad or your grandparents, hey, look.
39:05
Bitcoin’s real. All right. Do you work on Canadian taxes? I’m going to grab this one. So we we don’t actually do your filing for Canadian stuff, but if you want to, we can get kind of everything together for you, just like we would. And then you can apply it to your own tax situation. Correct.
39:36
we can actually do a CAD or USD. And we’ll send you the transactions and you file the forms. We’ve thought about going into the Canadian markets in the UK, cause they’re not too far off, but we really want to kind of make sure we get our process down for the US and where we’re stationed currently. Right on. That did remind me of a question we saw come in. This is a fun one.
40:05
What about US citizens who trade with a crypto exchange that is forbidden to them as a US citizen? Don’t do it. Be compliant. You don’t need to go to sanction exchanges. There’s plenty of trouble you can get into on your own. Now we do understand going to like Mexi or some other exchange that you use a VPN, it happens, right? We’re not going to give you legal advice on what…
40:34
that entails, right? But we will say, MEXE gives you CSVs just the same as any other exchange. We will take all that data, because we need it in order to produce a cost basis for all your transactions anyways. And we’ll put that on the ID high 49 and you’ll be in compliance with the IRS. Now, you and the other treasury department, that’s a whole different story. That’s a different department. At least on the one side.
41:01
One company with guns are coming after you. That’s awesome. All right. Good deal. Gene, if you buy crypto and hold it, do you need to report anything until you sell? The only thing you’re gonna report in that is there’s a box on your tax form that says, did you buy, hold or sell virtual currency?
41:31
bought it, you’re gonna check that box, and that’s all you’re gonna do. You’re gonna make sure you wanna keep track of what you bought it for, because when you do sell it, you wanna be able to produce your gain or your loss on the transaction. But if you’re just holding it, you just have to check that box and you’re good to go. You don’t have to do anything else until you make a sale or do some other specific transaction. Right on. All right, I’m gonna roll back through some of these older questions.
42:01
If I bought $1,000 in a particular token, and let’s say it was 10 tokens, 100 per token, if it goes up 100%, can I sell five tokens to use a cost basis for each token, so pay taxes on the $100 gain in each token, or could I pull out five tokens and claim no increase? No, you could get taxed on also.
42:27
whatever the difference was between $100, which you purchased it for, and then whatever you sold it for. You sold it for. $200 for each token, so the cost basis would be applied to each tax lot. And it’s essentially what they call FIFO, which is first in, first out, right? So whatever you purchased first, right? That’s gonna be considered for your first sale. So if you purchased it for $50, you purchased the first five for 50, and the next five for 100. Well, if you sold those five, it’s gonna be the cost basis of.
42:56
$50 ones and then the difference in what you sold it for But you still have to pick up that game regardless Gotcha. Gotcha. Makes sense Stan is asking if I have crypto in a self-directed traditional IRA Do I have to track the cost basis or just report what I take out and pay taxes on that? So traditional IRAs are only aren’t taxed on on so when they go in they go in pre-tax
43:24
and then they grow tax deferred, and then when they come out, we get taxed as ordinary income. So you don’t have to track your cost basis, you just have to track what comes up. Right on. Good stuff. All right, we’ve already talked about the…
43:44
Okay, I’ve been buying crypto on centralized exchanges and then passing them onto a hedge fund. Does that change any part of the process? That’s a good one. All right, so you bought it on a centralized exchange creating the cost basis and then you sent it to a hedge fund. And then unless the hedge fund kicks you a K1 or a 1099.
44:13
Yeah, they might kick you a cable. Yeah. And once they shouldn’t be able to report the cost basis for what you’re purchasing it for. Um,
44:25
but you would have to provide them with that. So it would be the difference between, yeah, if they kicked you a K-1 or a tax distribution at the end of the year, like capital gain distribution. Yeah, they’ll either kick you a capital gain distribution, a K-1, or some kind of share when you sold it. Yeah, I don’t know, we’d have to look at that one. That one’s.
44:48
We haven’t ran across that one yet. We’ll be looking at that as soon as we get off here. It’s a good stuff. You’re going to keep your cost basis somewhere so that, you know, whoever’s running the hedge fund will be able to incorporate that on any transactions or distributions, things like that. Yeah, right on. All right. I think this is probably a common one.
45:16
you’ve probably seen before is what if you haven’t reported receiving or buying Bitcoin or any crypto for that matter in past years because you didn’t know you had to? What do you do? Unfortunately, the IRS doesn’t take ignorance as an excuse. And that’s what they’re going to say. Look, these are the rules. They’re laid out there. What I would suggest is,
45:44
we’re coming across a lot of is the same situation. Hey, I haven’t reported. Here’s what we’ll tell you to do. Let us come to us, we’ll get the 89.49, we’ll calculate your cost basis, we’ll give you all the backup documents. You’re gonna wanna go amend your tax return to include that information. Now, if it’s a loss, you’re in a good situation because that’ll just carry over and it’s not gonna affect your tax liability. If it’s a gain and you haven’t reported for those years, what’s gonna happen is you’re gonna…
46:12
have a tax liability on this, but you’re also gonna have additional penalties and interest for failure to pay timely, failure to file timely, those types of things.
46:24
But if it’s loss, and a lot of people do have losses in these prior years, these were hard years to be invested in cryptocurrency. I would say capture that loss because that loss carries over to these good years. So you only get to use $3,000 of that loss annually, right? And so if you have $15,000 of loss, or let’s just say $100,000 of a loss, right? And you’re like, well, I didn’t report. You’re gonna wanna go back.
46:53
report that, roll it over to the next year. So you’ll roll over 97,000 and then you’ll roll over 94,000, whatever you don’t use. Now that can also be a component to any of the gains you have in the current year or in future years. And so, you know, it’s not just the gains that you wanna report. You really wanna be on top of it. And, you know, if you have losses, use them to your benefit and report it and get everything right so that you can take advantage of them at some point in time on your taxes.
47:25
Nice. Perfect. All right, Christina is asking a question I think I know the answer to, and I hope I do. If a gain is made during the year yet you did not sell it, do you owe any taxes on unrealized gains? No. God bless America. Yeah. God bless America. Yeah. Hi. Christine, tonight’s the night. Exactly. Yeah. Yeah, if you’re just holding the tokens, and all you do is buy, and you’re watching.
47:52
the value go up in your wallet, you’re like, oh, I’m a millionaire. Well, you’re not a millionaire until you sell it, right? You don’t have any taxes on that income until you sell it. So, you know, that’s. Just remember your long-term, your long-term gains after 12 months are typically a lot better than 12, than short-term gains prior to 12 months. Yeah. Just keep that in mind as we enter this next bull market.
48:16
Yeah, but isn’t it crazy that some people think that you should get taxed on those unrealized capital gains? That would create a huge cluster for what they’ve already tried to create. And I don’t know how they would look into everybody’s walls, but I’m sure they would find a way. That’s well, I was talking to a gentleman the other day, and I do know that IRS is heavily investing in artificial intelligence right now.
48:46
And so, yeah, you know, it makes sense for them to use AI to pick out who they’re going to audit and stuff. But, you know, so I think that you might get away with something for a while. But, you know, taxes suck. I hate them as much as anybody, maybe more than some. But we love them. So give us a buzz. I just yeah, you just want to play the game. You got to you got to play by the rules.
49:15
They have guns for a reason. What we are seeing right now, a lot of our audit notices going out, which are CP2000s that are saying, hey, you either didn’t report these crypto trades or we don’t have a basis for them. And a lot of them are coming from Robinhood or actual US certified exchanges where you buy it on Robinhood and then you’ve traded it somewhere else, right? Or you. Right.
49:44
transferred it into Robinhood and sold it. And so now they have this information of the proceeds, but they don’t have any cost basis. So those are being kicked out, those notices are being kicked out automatically, right? Because they’re saying, we see your taxes don’t add up to what we have, either tell us we’re wrong and prove it, or pay this penalty that we’re saying you owe for the additional tax liability. In the future, what we know is coming is they’re gonna force all the US companies
50:14
you know, all the exchanges, decentralized, Uniswap, just like Coinbase does, you know, they’re gonna KYC, know your customer, you’re gonna have to provide information so that they can actually track your sales. And so what that is gonna allow them to do is issue what is called a form 1099 DA, which is 1099 digital assets, and that’s gonna come out in 2025 is what they’re projected. And so anytime you’re making a sale in that year, you’re gonna end up being issued a 1099 from multiple exchanges.
50:44
and they’re not gonna be able to track cost basis, which is what we’re seeing right now because you’re not doing transactions just on one exchange. So it’s only going to get tougher from here on out to be compliant, which is, however you do it, we’d love if you come to us, we can help you out, but if you’re doing it on your own, make your best effort. Just get it in there, put it on your tax return, good or bad, you’re doing yourself a favor by reporting.
51:13
And they can see everything. It’s all on the blockchain. Like, don’t think they can’t see it because you’re on some obscure chain. They can see everything. Yeah, so we’ll even, when we get clients in here, some of them will like, oh, I don’t want to show you this chain on the left-hand side here that had too many gains in it. And then we’ll tell them, hey, here’s the address to this. Why didn’t you send us this chain? And they’ll be like, oh my God, I can’t believe you can see that thing.
51:44
Yeah, exactly. Exactly. I mean, that’s, yeah, it’s incredibly hard to detach your physical identity from your activity on the blockchain. That’s why like people that say like, oh, Bitcoin is for criminals. Like, no, no, it’s like a criminal’s worst nightmare. Like, you know, you can see the use case. Yeah, I mean, Monero, maybe you’ve got a case there. But
52:14
I’m surprised Monero hasn’t been sanctioned just like, what was the application, tornado cash. You send your funds to this Ethereum application, which then kind of spins it out and sends it to seven or eight different addresses. So they can’t tell, hey, where’d the money go? Who has it? And the IRS is like, your account is identified as transacting with this, it is now frozen. Those assets are ours.
52:41
And I think regulation is a good thing in those instances. And it’ll be more prevalent in the future. Yeah, it’s definitely an interesting push and pull going on there. I tend to lean towards the more freedom, more individual sovereignty, and that’s just the way I’m wired or whether I was raised that way. I don’t know, maybe I read.
53:09
certain books growing up that made me that way. But yeah, I remember it was what, Tornado Cash, that was the one they did that too. Yeah, we could go deep down that rabbit hole. And Ed brings up, Ed, who I have a feeling would be right at home with us in this conversation, says when the new USDC is issued, they will use AI to track you. Yeah, that’s the.
53:37
I believe it. That is the absolute truth. All right, a couple more questions. I know we’re coming up on an hour. And you guys have been really generous to share your expertise. So I’m going to try to get through a couple more of these. And remember, everyone, there is a link where you can go schedule a free consultation with Brian and Mike. And you can get your questions answered by them. Or I don’t know if you guys have others on the team that they could speak with as well.
54:06
But that’s probably the best way to get really down into the weeds with your questions. So just click that link, schedule your free consult. All right, let’s see. Augie is asking, see if I can summarize this.
54:28
unless that disparity is a deduction. Oh, can you see the question that Auggie typed in? A-U-G-Y. Liquidated. Okay, in 2022, I had X bitcoins liquidated from LEDN when the price was around 27K. My average cost basis was around 10K. However, over the previous three years, my average was much less. One of the last coins I purchased
54:57
was 0.75 Bitcoins. When was the purchase price? When the purchase price was 60K, my accountant said that I couldn’t list the disparity as a deduction to help offset the liquidation money.
55:12
I think what your accountant is showing is that it’s the first in first out rule, right? So you bought those bitcoins at $10,000, right? You were liquidated at $27,000. So your cost basis technically should be that $10,000 per bitcoin. Is that what I’m reading?
55:39
If you want to jump on to a consultation with us and we can clarify that. We can kind of look at those transactions as well. It makes it a little bit easier. Yeah, that sounds good. All right, yeah, I didn’t know if that might be a quick answer for you. Question about handling gifting crypto. Is there any special tax treatment when you’re gifting crypto? I would say get it documented the same way, you know, if you’re gifting crypto, if you’re gifting income to a family member, right, you know,
56:09
that you can gift without having to file a gift tax return. I would follow those same guidelines. If you’re gifting crypto to a friend or somebody like that, you’re gonna wanna track the USD value of all that and figure out at the time that you sent it, what would be, how much did you actually send in USD? And you would wanna file a gift tax return.
56:37
Right on, right on. Excellent. Um, that makes sense. All right. So, what was that in response to? All of these questions. Yeah, seriously. Bill said, can I be taxed on profits that are lost in the blockchain due to the incorrect wallet transfers? Yeah, that just hurts. Uh, it’s almost like the.
57:07
It’s almost kind of the same situation as a hat wallet, right? There’s more. We generally err on the side of being conservative. Now, if there is, I would look this up to see, I’d have to look this up more before giving advice to a couple hundred people saying, if you sent it to a mysterious wallet, you can take that loss. I think the IRS will take a hard stance against that just because.
57:36
everybody could do that in order to all of a sudden they would say no. I lost all my guns in a boating accident. Yeah. All my money burned up in the house fire. It sucks. It’s unfortunate, yeah. And they’re gonna say more so that’s an oversight on the user. Just kind of like, hey, you can’t be ignorant to what you’re doing. You can’t just, you gotta be.
58:04
mindful and with such a new kind of financial system and everybody doing it on their own, you know, they can’t, they can’t be held responsible for a mistake other people are making. I guess that is a nice thing. See, can you put crypto in a trust? I think you need to talk to your estate attorney on that one. I don’t know. I don’t know who the custodian would be. So yes, you definitely could. It’s just I don’t know how to how you’d custody it. So that would be the tricky part.
58:34
Right on, right on. I’m gonna have one more question that I’ve seen pop up in a few different ways. But someone is asking about staking and some other types of yield. So they’re asking, is that treated as interest or is it treated like dividends?
58:58
So I’ve always treated yield as interest, right? You know, you’re getting, you know kind of what the actual, you know, they’re saying, hey, you’re gonna get 7% on the stake deed, right? When you get that stake deed, right? That’s gonna be interest income, right? Because you know the terms of it and all.
59:21
Dividends would be, they end up being taxed at the same rate because it just comes to your ordinary income rate. So there’s no tax benefit to doing it either way or downside to it. I would be reporting as we do on all of ours, it’s interest income. Now if you receive state tokens outside of it.
59:50
You know, those are, you know, that’s other income at that point in time that you receive it. And then you would have that will be your call space. Let’s call forward. Yeah, okay. Yeah. Okay. And then. 1 more question. Is any reported is any reporting required if you’re trading in a self directed raw?
01:00:21
Well, you’re going to have the same issue in the Roth where you don’t have to, well, you know, it’s all tax deferred, everything that’s inside of it. So it’d only be what comes out.
01:00:35
If it’s inside of the traditional investment vehicles, you’re going to get some sort of 1099 for this. If you’re dealing with an actual institution like that with the Self-Directed Roth, whatever 1099 they actually kick out to you, they’re going to have the backup for those call spaces. I’m not sure of any Self-Directed Roth that said, hey, you transferred from your Metamask into your Roth. I haven’t seen that transaction yet.
01:01:04
I feel like they would have to kind of purchase it like a Bitcoin ETF type of thing. Yeah, they’re going to kick you at 10.99 if on anything. Okay. And we keep… We love it. I can hear all night. I know we can keep doing this all night, but I want to touch on a couple of things that have come in.
01:01:32
related to you guys specifically. So Denny is asking, can you do business in all 50 states? How long have you been in the business of doing crypto tax prep? So I think they wanna know just a little bit more about your experience and where you can operate legally. And so that was kind of, we can operate in all 50 states because we’re only doing the capital gains portion of it. So each state takes whatever you report for your capital gains and it flows through.
01:02:02
on your state tax returns, right? And so we don’t have to worry about dealing with any of state taxes or anything like that. We’re just, we’re doing the crypto tax portion, the 89.49. We started this company up two years ago. We’ve evolved as the landscape has evolved. We’ve tried a hundred different processes to realize, look, you know, the best way for us to do this is let’s get all the data through CSVs. Let’s not connect anything. Let’s make people feel comfortable. And, you know, that’s…
01:02:31
This we’ve been working on working on it and then this last year we went live in order to kind of get a test run before we head into this tax season where we’re full bore. We’ve got, I think there’s a group of about 10 of us now. So it’s not just Brian and I, we have 6 associates to it. We have some marketing, you know, some, some outside consultants that are that are on our team just to kind of help us.
01:03:01
We’re ready, we’re prepared to scale, we’re prepared to take on as many clients as we can. Awesome, awesome, good stuff. And Ed has a question about putting on a live workshop with instructors who could help people get their taxes done right then and there. Ed, this seems like probably is something that, I know you guys are always gonna be open to business development. So Ed, if you wanna just hit reply to the email that we sent you, letting you know about this event.
01:03:31
we can facilitate a connection and see if this is something that’s worth pursuing for everyone involved. Yeah, yeah, yeah, we’re open to everything. Right on, right on. All right, well, we’ve been on for over an hour and I suspect we could keep going for a while. So any closing thoughts?
01:03:59
Yeah, I saw one question on there that was, can you use the, you know, the rug pulled token exchange for tax law servicing without using our tax preparation? Yes, you can. It would cost $25 to do it. That’s all. Yeah. Nice, nice. All right. Well, Brian, Mike, I really, really appreciate your time. Before you jump off tonight, everyone, if you would.
01:04:26
We would really appreciate some feedback on these types of web classes. So if you got value or got something useful out of this, if you would hit a comment in there and letting us know what you thought about the webinar, or if you want to just hit reply to the email we sent announcing this event, we would love to get your feedback on tonight’s class. And with that said, Brian, Mike, thank you so much for your time, for your generosity, sharing your advice and your lessons learned.
01:04:56
I know I’ve gotten a lot of value out of it and yeah, just thank you both very much. Yeah, we appreciate everyone’s time and thank you for having us on. These are the best questions that we’ve seen so far, so we really appreciate it. Thank you very much. Thanks, Michael. Thank you everybody for showing up and being here with us. And like Ed said, we’re open to kind of doing a workshop to show people, here’s how you get the information that we need to prepare the taxes and go forth like that. It’ll be useful regardless if you use us or not.
01:05:26
So we’re here to help any way we can. So thanks again. Awesome. All right, thanks gentlemen. All right, with that said, God bless everyone and good night. Good night. Great, thank you. Yep, thanks.
