In Mid March, we hosted a Bitcoin Taxes AMA with Clinton Donnelly, founder of CryptoTaxAudit.com. CryptoTaxAudit is ACCOINTING.com’s main partner for the US, having helped over 1,500 crypto traders in over 50 countries. We organized this webinar to help out both ACCOINTING.com users and any other crypto traders looking for some light in their crypto tax scenarios.
We have added timestamps to each question so you can go directly to the video on YouTube in case you want to navigate faster through the AMA as it is quite long. We hope you find this information useful. For more information on the CryptoTaxAudit.com and ACCOINTING.com partnership, click here.
(00:01:06-00:03:43) Stephan: Glad to have you guys, all here super cool to be doing this. So, I guess let’s kick-off. So I guess, welcome to everybody in the chat. Welcome to everybody who’s viewing this to Accointing.com’s first self-hosted YouTube live AMA. Now the topic for this evening is Crypto taxes, and particularly Crypto taxes in the United States. Now to make sure that we really get the answers that you deserve, and to really make sure that you guys, leave this AMA feeling a little bit more secure about the upcoming tax season, we’ve brought in our U.S. Crypto tax expert Clinton Donnelly from CryptoTaxAudit.com. Clinton of course is joined with our CEO, Dennis Wohlfarth, and these two will basically be answering all your questions over the course of the evening. Now, before we kick off the AMA, I think it’s important to provide some of the structure for the evening. First, we’re going to have both speakers introduce their projects. In the case of Dennis, he introduces the platform, and then we’re going to jump into tax-specific questions related to Clinton, and then we’re going to jump into platform-specific questions for Dennis. Now, at the end, we’re going to be jumping into an open Q&A session, where you guys in the chat will have the opportunity to ask the questions you guys want to have answered. I would just like to say for the chat, please use the @ sign, and then the person to whom you’re addressing the question, it just makes life a lot easier for us to be able to direct the questions properly. An example of this would be, “@Dennis how can I import xpub addresses onto Accointing.com?”. Now, finally, we’d also like to say thank you to each and every single one of you for taking the time to-to really be here and to ask some of these questions, and so we’re offering a 25% discount on all our tax packages. Simply click on the link in the description below, the discount code is CRYPTOAMA. So, I guess without further ado, let’s get this started. So, I guess the first question for Dennis. Do you mind introducing people to the accointing.com platform? Why did you guys decide to build the platform and what were some of the issues that you guys came across in the Crypto space that, you know, required you guys to solve this issue?
(00:03:44-00:08:20) Dennis: Yeah, yeah. First of all, thanks a lot for the introduction and the overview of what we’re gonna talk about today. So, we built Accointing pretty much for our own needs because we needed to track all the investments we did over the last years. We started in Crypto in 2014 and went into through the ICO bubble, and all of the different movements until now, and then the end of 2017 or beginning of 18 we decided to build our own tool, just for ourselves to keep track of the different trades, of the different investments we did, and so that’s started to become bigger and bigger because we had friends that needed that tool, and we built different solutions for different countries, because like the co-founding team, we’re from different countries, and so we needed a specific solution for each country with different classification methods in every country with different regulations and calculation methods. So, we then decided, okay we need a team. We hired a few of our first developers. We built up the team, it grew really fast, and then we built Accointing as a platform, and I want to quickly share my screen just to show you how this looks like. I mean, you land on Accointing, and you will find, when you first sign up, you will find an empty dashboard, where you can connect your different wallets or exchanges. So, we just start from there. You can choose whatever you want to connect with. So, if you have a Coinbase wallet, just search for Coinbase, click on a live connection, we connect it automatically. We only get read access to it. So, there’s no need to worry about any of any security issues. We just read the historical trades, import everything automatically to Accointing, and update it on the go. So, whenever you log in the next time or you click on a hard refresh we will input the newest data and collect all the different trades you did since the last time you logged in. It’s the same thing with Ethereum or the different hardware wallets, so you can connect the bitcoin addresses that you have, the Ethereum Defi trades the media mask wallets, all of it. Just import it with the wallet address and we import it automatically. And once you’ve done that, you will find an overview of the different wallets or exchanges you own. You can connect the same account to your mobile phone, so we have a mobile app fully functional to keep track and update everything. You can even connect wallets and more exchanges through the mobile app on the go or add some manual transactions if you want to. And then you will find an overview of, like obviously the total value of your account, the different assets you hold with the average buy price, profit loss, the historical performance you have, different portfolio locations, and where you hold your coins. We can deep dive into any specifics later in the questions. You will find a really nice feature for the U.S. that we also go deeper into in a few minutes. With that, you can just optimize based on the holding period, and then obviously you can report everything. I mean you can create the tax reports and all these different outputs. The cool thing about Accointing and the reason why we did that is we decided to have the entire platform for free so you can just import your transactions, you can keep track of everything, you can keep-you use the mobile app and you only pay once you need a tax report because we somehow also need to make money to buy or like to pay our team’s salaries. So, the reason why we decided to do that is we wanted everyone to keep track of everything during the entire year because if you do that afterward like if you trade for two or three years and then you realize you need to do your tax report, it’s gonna be a mess because you did so much, you had so many wallets, different exchanges. Maybe exchanges go down, so you want to keep track of everything on the go and all the time so that you in the end when you’re like two days before the tax year ending you want to report, you just have everything in one click, and that’s also one reason or like the reason why we partnered up with Clinton is that Clinton is an expert for Crypto taxation for the U.S., and we needed a local partner in the U.S. that helps us with the different classification methods with the different tax regulations with the new regulations that come out and so with that, I want to give the word to Clinton to talk about his service a little bit and why we partnered up.
(00:08:21-00:08:29) Stephan: Perfect, and I guess Clinton, you know, tell us a little about what is Crypto Tax Audit all about? And why did you get into Crypto? And why partner with Accointing.com?
(00:08:30-00:11:36) Clinton: Well, thanks for the introduction Stephan, and I really enjoy working with Accointing.com. We have a great partnership and I think they have an excellent product. I’ve worked with many platforms out there and there are several very good ones and I consider Accointing to be one of the top ones. I’ve been-my team has been doing Crypto tax returns since 2018. We’ve done thousands of them and at this point, we also are the number one specialty firm taking care of defending Cryptocurrency traders that are being audited by the IRS. I have 17 clients being audited on their Crypto returns right now. This has given us a really interesting perspective because I can see how the IRS is attacking Cryptocurrency returns, and as a result, we’ve improved and changed how we prepare a tax return. We call this a Bulletproof Tax Return Methodology. So, it’s the idea we can prepare a return that is less easy for the IRS to attack, but at the same time most of my clients are large traders and whales but we have a real passion for everyone else that’s involved in Cryptocurrency trading. They need tools, they need help because there’s so little guidance. So, we put together CryptoTaxAudit.com, and we have some amazing products you can’t get anywhere else. The first one is we have a newly announced master class you can take, which shows how to do your own Bulletproof tax return, and if this we have-we’ll tell you more about it on the show that the-when you go look study about it, this can reduce your chances of by-of being audited significantly and give you a better tax return than you’re going to get with TurboTax act, HR Block or even your friendly local accountant, but we also put on a revolutionary new service, out there that no one else is offering. We have-we’re using breakthrough technology to check your IRS returns on a weekly basis, and we can see when the IRS supercomputers have flagged your returns for an audit. They put this flag on there, we notify our clients, our membership clients right away. Typically, there are six months between when a flag is set and an IRS auditor starts the audit. That’s enough time for us to look at your return, figure out what’s wrong, was it a Crypto thing, maybe it’s a Non-Crypto thing. We can fix it, refile it, and you can avoid the 20 to 40 accuracy penalty plus significant interest that the audit is going to hit you with. This is revolutionary, absolutely revolutionary. Finally, people have a tool that puts them in defensive positions, like having early radar, right? In warfare, you want radar. You want to know when the enemy’s coming in. Without that, you just wait to be blindsided in your mailbox by the IRS. So, this is fantastic stuff. So, we’re really excited about bringing tools and technology to help the average trader in the United States, and we work with Accointing because they can help generate a quality tax return with accurate results that can work together with all of this.
(00:11:37-00:12:18) Stephan: I mean to me this sounds like a match made in heaven. You got the tech side and of course, you got the actual expertise. Sounds super cool. So, thank you, guys, very much for the introduction. So, I guess we’re gonna kick off the – to go off the – now with some of the tax-related questions for Clinton. The first course is going to be providing just an overview of Crypto taxes in the U.S. We’ve got a lot of questions regarding just the fundamentals, and I think Clinton, you know, you have the absolute mastery of the subject to really give people an easy way to understanding something that can be sometimes quite complex. So, I guess how are Cryptos taxed in the United States. What would the overview be?
(00:12:19-00:14:43) Clinton: So, the IRS classifies Cryptocurrencies as property. Property is taxed when you sell it. So, if I buy a piece of art and the price goes up and I sell it, I make a profit or we call it a gain. That gain is what is taxed. Not the price you sold it at, but at the gain over what you bought it at. Now, what’s unique about Cryptocurrencies is that I trade one currency from another currency to another currency and this gives rise to one of the questions I’m asked the most. Why am I taxed when I trade one coin for another coin? And I want you to listen real closely to this answer right? I’m paraphrasing exactly what the tax law says, it says that a taxpayer realizes a gain or a loss any time they just sell or exchange property. Cryptocurrencies are property. The gain that the real gain can be realized in cash that you receive and in the fair market value of the property received. So, when we’re doing crypto to crypto trades there’s no cash, but we’re receiving a new currency at a fair market value. That is considered the measure of how much the gain is. So, Cryptocurrency then we have gained now we then in the U.S. we look at that. We look at that gain and we decide how long have I held this gain. This is something that Dennis was alluding to in his tax chart there. If you behold an asset for more than a year, you get to benefit from what’s called long-term capital gains treatment, which for more people is around 15% tax rate on the net gain. The net gain is all your winners minus all your losers, okay? At the end of the year. Hopefully they all, hopefully have more winners than losers. If you don’t have, if you haven’t held in a year, then that’s called short-term gain. Short-term gains are taxed just like ordinary income. Ordinary income must be like interest, dividends, wages. These are all taxed at your marginal tax bracket, which increases as you make more money. That’s what ordinary gains are. So, biggest way, the absolute biggest way to reduce your taxes is to hold on to a coin for a year before you sell it. Once you have it for over a year, then you can sell at any point in that time and you’re gonna get the long-term gains rate.
(00:14:44-00:15:19) Stephan: To be honest that was one of the questions I think a lot of people had it was really about holding periods, and when did the tax thresholds kick in. Another one just to follow up on this. We’ve received a lot of questions about the forms. What do the kind of the form of mean, 1040, the 1099k, 1099 misc? I think that’s something that a lot of people you have to deal with you know the paperwork, understanding the forms. Do you mind giving us a little bit of an overview, you know what do you – what do you get to do? Where can you get these forms and how is it best to go about filling them out?
(00:15:20-00:19:01) Clinton: Well, the IRS says that as Americans, we have what they call a voluntary tax system. They depend on people to report honestly how much they made in order to increase their level of honesty. They mandated that certain people who payout amounts file forms at the end of the year reporting these payouts to the IRS. In the case of an employee, a company is required not only to pay their wages but also to withhold some taxes, that withholds that’s reported on the w-2 forms. So that’s for all employees. Everybody’s seen this form right? Now other types of payouts may get what’s called a 1099 form and there’s, oh gosh, there’s about a dozen of them and they’re used in a variety of ways. In the Crypto space, probably the number one form there maybe if there’s a 1099int for interest, 1099div for dividends. The most common one we see in the Crypto space is the 1099k. The 1099k is it only talks about how much proceeds someone had. Now, this is very distorting in terms of results. Anyone who’s gotten a 1099k from Coinbase has probably said that’s outrageous. I didn’t make that much money. I have a client right now going through an audit. They did not report the 1099k income from Coinbase on their 2018 return. It said for Coinbase’s 1099ks and they had 3 million dollars of income. And they got an audit. He didn’t report this. Turns out he actually lost 17000, because while he might have had 3 million of income, he had 317000 of cost basis. So, he’s in a losing situation. So, it’s a misleading form and the IRS has gotten a little bit excited about them. As of this time, but to be in respect to Coinbase they decided this year they’re not issuing 1099ks because they’re getting too much bad press. The second form is 1099 miscellaneous. Misc you said, miscellaneous. This is used for reporting a lot of different things. U.S. exchanges will be using this form to report different types of income that are non-trading income. For example, interest from staking value if airdrops that you might have received that they’re these different types of income. All of that is ordinary income. There’s another form called 1099b. B stands for a broker. This is the type of form that you should get from a brokerage house, Merrill Lynch, Fidelity investors and it’s going to list what you bought. The Google stock for what you sold the Google stock for. Crypto would generate the same thing because it’s so easy to take that form and plug it into your tax return, right? But as of now, there we’re a long way away from having a 1099 crypto, all right. The reason being is that the exchange that sells your coin has no idea what they bought it for, so there’s no one who can report that, and this creates a teal complexity. You as the taxpayer, how do I report – what I mean -it’s easy to know what you sold the coin for. How much did I buy it for? You know, I bought one of those coins last month and I also bought one of those coins last year at a lower price, which one did I sell? Which one can I report as selling? And this is where you absolutely have to use a capital gains calculation service to work this out. You try to do this by hand after you’ve done like 10 trades, you know your mind’s going to be hurting all right? You’ll be reaching for the alcohol. So you have to be the service and I recommend Accointing because it does exactly this and it’s in they’ve automated it and it generates beautiful results.
(00:19:02-00:19:57) Stephan: I mean, that’s kind of a perfect question, just did everything there. I really hope that you guys in the chat noted this down. This is some yeah…this is some real gold, we’ll hopefully help you guys out as much as possible, save some money, and help out with the paperwork. So, I guess the next topic that people really wanted to dive into was staking. So, with staking, I always feel, is kind of a – there are some complexities to it. Just simply staking itself and of course, I can imagine that the crypto on the tax side too um might seem a little bit daunting to people. So, just an overview. How is crypto staking taxed? What should people look out for particularly if you’re – if you’ve just staked your ETH2? Do you know what I mean? You might be – it might be sitting there for god knows two to five years. The a big question for a lot of people.
(00:19:58-00:23:16) Clinton: So, that’s a good question. So, there are two aspects to that. One is, the coin that’s being staked and the second is the coin rewards that you’re receiving. So, the coins that you’re staking continue to be your coins, and if they were short-term you’re gonna stake them for a while like you said two to five years. They’re not gonna be long-term held coins, it’s a great way though, to do that. You never, just when I put the coins into staking that is not a sell. It’s just me putting them somewhere else, okay? No, tax events there. When I receive a reward coin then the reward coin is considered income at the fair market value in US dollars on the day that you received it. Now, there’s a couple of things you unlock there, right? First of all, in this situation have I actually received the coin, or is the coin locked up somewhere where I actually have to go and unlock it to claim these coins? So, if there if it involves the second step of actually claiming, then it is said that you do not have dominion in control, which is what a-the courts have said. That’s what constitutes income is when you have dominion in control over it. It’s not until you actually claim it, all right? Is that important? Well, okay? If the coins were awarded at a certain date at a lower price, these coins have gone up in value and then I don’t claim them to a later date, I’m claiming the higher prices. What’s going to be my fair market value, all right? And there are- this raises an interesting point, that the IRS had come out with a revenue ruling, which talked about in this case it’s something similar to staking airdrops that an airdrop is considered the income at the fair market value in US dollars in the day that you received it, but this was widely ridiculed because, especially as you all know, back in 2018, these coins were… these, they were worthless and whatever value they were claimed to have was fictitious, and so it was not legitimate to consider those a valid coin. Well, this gets into the definition that the IRS has of fair market value, which is what a knowledgeable buyer and a knowledgeable seller would agree to as the price if they had no compulsion to sell. So, those coins, while they might claim to have a price, right? You are free to go for a different price asserting that the fair market value is different. This is of particular interest to people who are XRP holders, who want to get the, I believe it’s the spark token, you know. This coin’s coming out, Ripple has not said what the value of this token is, and you’re receiving it, and you know these coins started coming, but I think about a month ago, and you know the question js what are they worth? Well, you know you can’t do anything with these coins. There’s no real market for them and so, it would be legitimate to say that the fair market value is zero for these coins until such time as the market establishes and then you’d have to use that price, but it’s a tricky question and especially when you come down to having to pay tax on something that you’re not really sure that you really had that value that it’s being claimed. So, good question.
(00:23:17-00:24:09) Stephan: Well, probably I think again, great answer. For those people in the chat, follow-ups, mega appreciated if you guys really want to go into more of these staking related things. So, Clinton can really answer some personal questions. I guess, just to keep on moving on. One of the hottest topics is at the moment it’s DeFi, Lending, and Liquidity Pools. I mean, you look at the success of Ave and the rest of these players. Super, super big topic. So, again here, I think it’s – it’d be interesting to know is there a way to kind of summarize how is DeFi tax the lending element and the liquidity pool taxation. So, I think it might be best to break it down simply into DeFi, Lending, and then LPs. So for example is DeFi considered to be an income tax or capital gains tax?
(00:24:10-00:28:35) Clinton: Great. So, in the Lending scenario, I have put some coins up, right? And now I get coins back that I can use for other purposes and at some later date I have to return the second set of coins back with some interest, okay? So, putting my coins up as collateral, that there’s no tax related to that. That they’re my coins, I just put them there, there I get my coins back at the end if everything goes well. The coins I receive – the loan if you will, there’s no tax on a loan. I – if I use those coins and I engage in other activities that might be capital gains related. Well, then that’s taxable, of course, but if I take the coins I do nothing with them but a month or two later I give them back with interest then there’s no tax on that to me as the borrower. I have no tax at all, okay? I get my original coins back and the holding period continues for them and it’s-it’s tax-free in a sense. Although I am owing interest to the service that I borrowed it from. Now in the characteristic-in the case of yield, farming, and Liquidity Pools. Now it’s not as simple, it’s not as straightforward because here I am staking a coin. Let’s say I stake some ETH and then I get another coin that is the representation of that ETH. We’ll call it a wrapped ETH, which has the same value as the original coin and it’s been minted just for me and at some time later, the time I’ll return these coins in order to get my original ETH back, but you know have I generated a taxable event? Is this a capital gains event? I’ve given up one set of coins to get a new one. Is that capital gains? Well, the way I look at it, no it’s not because I have not really, I have not sold or exchanged my original coins. I have just merely left them somewhere. I’ve gotten this wrapped eth kind of like a receipt token, you know, like if I were to go to an opera, and I take my nice coat, and I check it at the coat check, right? I get a coin. I get a little token back, says 45 on it, right? And this is my coat check, I can give it to Dennis. He can go get my coat, all right? I’ve not had a capital gains event. My coat I’m going to get back, and that’s the same thing we have here in the eth example. The-this wrapped eth type of thing is just a- it’s not really a capital asset. It’s a receipt token you’re giving it back, we would- I think that’s a pretty strong case to say that that’s not taxable. However, from a practical point of view, there may be again that you experienced on your eth. So, let’s say you bought these ETH at a thousand. I bought a thousand dollars of the ETH, I got the wrapped ETH, the value of my wrapped ETH has now increased to 1500 when I trade it back to get my original ETH, my original ETH comes back to me at 1500. Did I have a capital gains event? No, they’re still my ETH, you know. They just increased in value. It wasn’t- because I sold it or anything. I haven’t given up. I haven’t sold or exchanged. Therefore, as I said tax-wise, you’ve not realized the gain. It even gets more complicated when we get into things kike rebalancing, rebasing tokens, tokens where we’re blending, you know, liquidity blending. It gets even more complicated and at this point in time, we are departing away from the standard notion of capital gains in simple income, and we’re getting into sophisticated instruments, futures, commodity, derivatives, a whole variety of things, which entertain different taxation strategies, and our team is actively looking at, creative ways to do this. We are actually developing new ways to address this whole DeFi scenario as a set of complex transactions that we have a special tax statement related to it, but I’d be interested to hear Dennis’s comments on it, because it- how you automate the generation of the capital gains report and tax report DeFi is challenging. Everybody’s struggling with it, and it requires a lot of attention to detail, if you’re going to be doing that reconciliation.
(00:28:36-00:28:55) Stephan: Yeah, I think, just to pose that to Dennis too. I think DeFi is also something I think a lot of people had questions about on a platform basis. Do you know is there a way that Accointing caters to that as well on the platform that there really is a differentiation when you generate the tax report?
(00:28:56-00:34-20) Dennis: Yeah. So, I’ll share my screen again just to show that – Can you see it? I’m just – There we go. Perfect, perfect. So, if you import your uni swap wallet that you use to trade on uni swap, for example to Accointing, we import the entire transaction history from the blockchain, and you will find, for example here, you will find a trade between uni tokens to Ethereum. They are marked and put together as a swap with the transaction ID. When it comes to, for example, liquidity pool tokens, they often don’t have a real price or you can’t really receive a price. So, they come into Accointing, and we handle them in a way that we also mark them as a swap at the moment from, for example, Ethereum and Deribet. If you put Ethereum and Deribet to a liquidity pool and you get the liquidity pool token back you would, at the moment, create a swap into the liquidity pool token, then you hold this token, you can stake it somewhere or you then at some point, and maybe a month later you swap it back to the original Ethereum and Deribet, then you will not get back the Ethereum and Deribet that you put in because the price has changed and you will have a rebalanced relation between Ethereum and Deribet tokens, and there’s two ways, actually, now to handle this. The easiest way and like the most conservative way that the software currently handles this is it just creates a taxable disposal when you trade the Ethereum and Deribet the first time into the liquidity pool token, and then it does the same thing when it trades it back into Ethereum and Deribet. But that’s obviously tax wise, not the best case, and as Clinton said there’s another way to do it. So, the other way is you actually mark those into and send them as an internal into a wallet that you kind of like just have as an intermediate wallet, and then once you sell back the liquidity pool tokens into Ethereum and Deribet, you only trade the difference. Like, you only trade, let’s say you get one Ethereum more and you get 100 Deribet less. So, you would trade that against each other and you only create a disposal for the rebalancing of that liquidity pool. We can go deeper into that at the later stage. There’s also a few more things that I wanted to quickly show, which also comes back to the things that Clinton explained, especially with the problem in Coinbase and the 1099k and all these different documents, and why it doesn’t make sense that Coinbase actually gives you these reports, especially if you have wallets or other exchanges that you used, because here in this example, you just see, for example, that there were 300 BAT tokens sent away from Uphold to like, in this case, unknown receiver, because Uphold doesn’t deliver the transaction ID or the receiving wallet address, and then there’s 300 tokens coming into Ethereum, like into your Ethereum wallet, and those two transfers here are actually meant to be an internal transfer from your Uphold wallet to your Ethereum wallet. And the reason why this is really important, and the reason why we built that review stage here is that you can then approve that it could be that you receive another 300 BAT token at the same time or like five hours later from a different exchange. So, without a transaction ID, you just have to quickly approve it and tell us which one to correct is and then with that remove the cost basis from the Uphold wallet to the Ethereum wallet, and we actually keep the original buying from buying information and by date cost basis from your BAT tokens when you bought that maybe back two years ago on Uphold. We sent that over. We transfer all of that information into your Ethereum wallet and with that you keep all of that information. That’s why it’s so important to keep track of all the different things and not only one exchange that you use. So, it’s really important to have that ecosystem in one place. And then when you do that you have different options, kind of optimize that based on the different holdings. Clinton said that you have like the 15% tax rate when you hold it for longer than one year, and you will actually find your BAT tokens here, I mean, now, we have moved it all to Uphold but like in a later stage. So, you will find how many of your BAT tokens or of your Bitcoin tokens here are on Uphold and how many are in BitMex, and you can move into the future and see at what point in time are these tokens becoming a long-term position. So, that means they would move into the green area here, and they would create a long-term gain, which is way cheaper for you, in terms of tax outcome. And you can just optimize based on that, based on multiple depot. First in, first out. Last and first out or high for whatever method you want to use. So, that’s I think something really interesting to know in order to make those optimizations happen.
(00:34:21-00:34:50) Stephan: I just wanted to say, Dennis, since we’re on the platform, anyways. One of the questions that we got that was really pertaining to Accointing.com had to do with importing transactions into Accointing.com. Do you mind giving us a little bit of an overview? How do you do that? You know what I mean? Because we’ve seen the platform a little bit now, but I think one of the main questions is how does it – how do you even get into the system. How do you get on it?
(00:34:51-00:36:48) Dennis: Yeah. So, it’s really easy. I mean, in the end, when you create your account you will have the free version at the beginning, you can then just go to the wallets page. You will- we will guide you through that when you land on Accointing, and then you just click on connect wallet and in the end, what you do- we quickly need one wallet here, so I can import it again. So, you can just take your public address of your Ethereum or MetaMask or Bitcoin or whatever token you have, whatever blockchain you use, import it to Accointing. Click on the connection, you will see the different tokens that you have in there, and we will import the transactions, fully automatic into the system. We will mark it as the internals with the different classifications that we can get from the blockchain or from the exchange, and you will find your balance, you have the full transaction history in here, and then with that you have like it’s simply connected. In case there’s an exchange maybe that got hacked and this doesn’t exist anymore or there’s an exchange that’s completely new, and we don’t have that, you can first of all, obviously request that, and second, you can just create a manual exchange or wallet. There’s two different ways to import it. You can either use a template, which is just an Excel file, and you can import the different transactions and trades or you can use that standard form here, where you just tell us, okay there was a deposit of one Bitcoin back in the beginning of March, and classify it with the different classifications. For example, it was income because you did some work for someone and then you’re imported done, and we calculate the receiving here. We will assign a cost basis to it, which, in this case, would be the fair market value of the Bitcoin at the receiving date, and it’s marked as income and we will also create that. You will also find that in your report later when you create the full text report.
(00:36:49-00:37:01) Stephan: So, I- you showed a little bit the exchanges, the connecting, the wallets. How does the user know that the data when connecting to Accointing.com, the wallet is safe? How is that assured?
(00:37:02-00:38:35) Dennis: So, all of like, all of the different Ethereum and Blockchain imports are safe because we only read the public address. I mean, you can just go to an Ethereum’s to Ethereum scan, for example, to any sort of explorer and read your public address. So, whenever you share your address with someone, he could, in theory like, read all your different transactions. So, that’s something we- we only have read access by like, by definition of the system. For exchanges, we only allow read access, API keys. There was, for example, a lot of people asked for example, for OB Global, and we didn’t import it. We didn’t allow the connection because they didn’t allow a read-only access key. So, they had a write access and a read access, and we didn’t want to have that key just because of security reasons, and so, we decided to not import it. With all the other exchanges that we support, finance or whatever that is, Bitpanda, Kraken, Coinbase, they all use a read-only access, and you can just set permissions, and we will only have access to the historical transfers, but we cannot trade. We cannot withdraw anything from the account. And if that’s too unsafe for some people because they don’t want to do that, you can just always upload the CSV file. The beauty of the API connection is that you can always just click on refresh or we even refresh it once a day to just always be up to date, and you will always see the correct balance for your exchange.
(00:38:36-00:38:57) Stephan: And I think, touching upon the security element, I think is the perfect bridge to the next question, which really pertains to classifying transactions on Accointing.com. So, a lot of people wanted to also know how do you classify and track the coins and the tokens.
(00:38:58-00:41:04) Dennis: Yeah. So, first of all, the most important thing is always connect your exchange and wallets first, because a lot of the transfers would be internal transactions, that we then automatically assign as an internal between your Uphold wallet and for example, in this case, the Ethereum wallet that we saw before. So, first do that and then go through the different steps. So, there’s, in the review section, you will find, obviously, that internal section here for things that we cannot assign automatically. So, you approve those, go through that internal step, and once this is clear you move forward to the classify transfers. And here, you will find a short intro into what the different classifications mean. But, we are about to publish some more data on that in our help guides. And so for example, you have a withdrawal of let’s say, this is U.S. dollars and you just move that into your bank account. You, then, would just classify it as a Remove Funds, because that’s just something that doesn’t create any taxable events. It’s just removing funds from your portfolio, that’s it. So, you classify it and you’re done with it. When you receive some other USDT here, maybe you receive that as an airdrop or income or liquidity pool income, lending income. All the different things that could happen, just classify it and we mark it automatically in the report and handle it with the correct regulations. If you connect, for example, your Kraken wallet, your Kraken exchange, and you have- you staked on Crodoex, that’s something that we automatically classify. So, you don’t have to do anything, but if you do it on an Ethereum wallet, for example, and you receive staking or like in the future staking rewards, or you receive some airdrops, we don’t know where this comes from. It could be an airdrop but the block explorer or the blockchain itself doesn’t tell us about that. So, those transactions you will just find here, and you have to go through them once, and then they’re classified, and get, like, treated correctly.
(00:00:41:05-00:41:28) Stephan: So, I guess the other important element, I think people want to know is, how do you end up generating the tax report with Accointing.com. So, you’ve shown, you’ve demonstrated all the different classifications, the security you’ve talked about that, but at the end of the day, a lot of people just want to find out how do I generate it. So, do you mind giving us a little bit of an overview on that?
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Yeah. So, it’s really straightforward. I mean, once you have a package for Accointing, you have a
license that is valid for a year, and you can just create tax reports for the current year and all the past years. So, you don’t buy a package per tax year. You just buy a license. Once this is valid, you can create as many reports as you want, and then just select the correct tax year. Go through this process here, you see a review of the short-term gains, the total fees, and long-term gains, in that example. You can then select if you want to file with an online tool, if you use TurboTax, for example, if you want to file with a CPA, so if you want to file with Clinton, for example, just use the CPA settings or he will just do it for you. So, you don’t have to worry about that, which is the easiest way, and then, or you file alone, you create – you click through that, you create – we have a short checklist of what you should review and you have all your exchanges added. You have to correct country settings, which makes a big difference in the taxable outcome because regulations are different. And then, you have one last step that is really important, and this is something that we – that I already showed as a review step. So, there are a few things that you should know about before you create your report. You need to check if all the different tokens are mapped correctly. Sometimes, it could be that you need to map a token manually because for some reason the mapping didn’t get recognized. So, you just select the uni swap token here, you map it, and then that’s done, right? So, you can do this, and then you walk through the internals. We have already taken a look at this, you walk through the classified transfers, and then there’s one last step which is called missing funds. And missing funds is something that just tells you if something in the import went wrong or the exchange didn’t deliver all the data points, and that could be, let’s say, maybe, you did create some manual transfers, and you didn’t- you made a mistake, for example, if I would just create a 10 Bitcoin withdraw from my Ethereum wallet, which doesn’t really make sense, but I’ll just do that, and you will see what happens because this withdraws here don’t exist – you never bought these Bitcoins. So, you will have a problem because the system doesn’t know the buy information. It doesn’t have any cost basis. So, what it would do, it would actually create a gain that is way too high because the cost basis would, in that case, be zero and it would show up here in the full data set. Same thing here, it shows up in the review steps, and it tells you there’s 10 Bitcoin missing that would create a wrong balance of almost $600,000, which ,obviously, is not the best thing for your taxes. So, you can either go back into the full data set, review it, you can reconcile it, which creates a reconciliation deposit, just be careful with that if it’s amounts like that. You should probably check why the data shows up wrong or what’s missing or you contact Clinton, and he can help you with that, but you can just fix that automatically, in theory, we created the deposit right before the withdraw, and you will have it reconciled. So, obviously, the best way is just to go deeper into the data and see what’s wrong. And once you have done that, you just walk through here, continue, you generate a report. We do that, we calculate all the different things based on your settings on portfolio and on the different country settings, and you create a download report that you can just open here. You will find you form8949 and the exception statements and you also find a full text report that shows you, gives you a full overview of different taxable disposals short-term on the different classifications here, the full amount that you need to pay in taxes. You will have a list of all tax relevant incomes, margin trading, transaction fees, non-tax relevant disposals, incomes. So, it’s all summed up here and you have a full history per asset, all different disposals, the full data set in here. So, you can also use that as some sort of an AML or proof of ownership tax report. If your bank, for example, needs that because you, I don’t know, invested $500 and now it’s worth two million. So, the bank will probably have, where did you get that money from. So, you need some sort of report, and then you will have a full overview in here with the different classifications and the different transactions you’ve done.
(00:46:05-00:47:03) Stephan: Perfect. I mean, I guess, thank you very much gentlemen for the opening part of this. You know we’ve gone through Crypto taxes in the U.S. as a general. We’ve done staking, we’ve gone through some of the DeFi and lending, and we’ve also introduced, you guys, to importing, classifying, and actually generating a tax report on the Accointing.com platform. So, we’d like to now open up the floor to the Q&A. Before we do that, just a quick reminder, we’re offering a 25% discount on all the tax packages. Simply click on the link in the description and the discount code is CRYPTOAMA. So, without further ado, let us hit up or open up the floor for some of the questions from the chat. So, the first one we have here is Thomas Meyer and he asks, @Clinton I would like to fix some past returns where I didn’t report Cryptos correctly. What should I do?
(00:47:04-00:49:21) Clinton: That’s a great question. I’m hearing this sort of question often this year as opposed to last year because people are – they’re doing well, their Cryptos, they have some money they might want to fix some things in the past because now they’re worried about the IRS. It’s a great question and I’ll first note that, so that, when Dennis was showing that when you pay for a package on Accointing, you can generate tax results for any year that you were trading. That’s great. A lot of other packages out there where you have to buy it again every year. So, that’s a real benefit of their packages, but what do I do? We’ve observed that the IRS is auditing amended returns. When you fix the past tax return, it’s called amending it. They are auditing that I would say at a rate five times higher than they audit an originally filed return. So, there’s definitely an increased risk. I have a client who filed an amended return, didn’t have a K1 return form for his partnership. He got audited on the partnership. They saw the Cryptos and it turned into a Crypto audit. So, this is very serious. Our strategy that we’re recommending to clients, and clients are wanting to do is they’re instead using our membership in the Crypto Tax Audit service to monitor all their tax returns to see when they get flagged for an audit. And only then, do the amendment and file the fixed tax return before the audit begins. This is actually a far less expensive route, and less likely to draw an audit. So, this is a powerful tool, a lot of people are doing it. And then what we say is, Hey, look this year 2020, file your tax return perfectly. Do it right. Make it bulletproof. Report all your Crypto income. Do it right, and do it right every year going forward. And as each year we go forward, we’re one year, further away from these tax returns that could have been better. And eventually, the statute of limitations will kick in, which is for most people it’s three years, for some people six. And as they- you’re just trying to let those things fade into the sunset and not have to worry about them, and you can do that with that Crypto Tax Audit tool to monitor and protect yourself. So, this is a great question, and that’s what we recommend for people to do now.
(00:49:22-00:49:38) Stephan: Thank you very much. I think we have another one for you by Saumil. Saumil asked, @ Clinton What is the latest thinking around amending old returns? Recent IRS guidance suggests that FBAR reporting, no longer, is no longer necessary?
(00:49:39-00:51:48) Clinton: Well, I just give you my answer about amending old returns, which is Crypto Tax Audit, and start filing correctly once there. Now, the IRS does not give guidance on the FBAR. The FBAR is from the FINCEN, Financial Crime Enforcement Network, which is an agency of the treasury. They came out with a statement in January, stating that they were going to be coming forth with new regulations, making it very specific and clear that all Crypto exchanges that are foreign would have to be reported on the FBAR form. Now, they’ve said that they’re going to do it, they haven’t actually issued those, but I think it’s something you can expect to be clear at the end of this year. So, when you file your FBAR for before the 2021 year. So, no the answer is you – what I’m seeing from a regulatory point of view, especially this year, we’re seeing the old Fintech one constructs being forced onto Cryptocurrency trading. So, we’re seeing the FBARs now being forced onto foreign exchanges for Crypto trades. And interesting comment foreign Crypto trade means it’s not a U.S. exchange. So, this would embrace the notion of DeFi trade exchange, as well, because they’re not U.S., and they’re nowhere else either, but they’re definitely not U.S. Secondly, we’re seeing the Security Exchange Commission force the security definition on top of, like, XRP. And we’ve just recently seen the commission’s future trade. Commodity Futures Trading Commission is forcing the derivative definition on some products that are coming out of Binance. So, we’re – they’re forcing old definitions on top of these constructs, and they’re doing it somewhat through the legal system. So, they’re letting the courts finesse the definitions to embrace a new generation of products. It’ll be interesting to see because if it doesn’t go, the direction that the agencies will want will probably then have legislation from congress to make the adjustments.
(00:51:49-00:52:09) Stephan: Perfect. Thank you and I think now we have a question by Mark Muleady. @Dennis Will Accointing track historical Crypto purchases that have been transferred to a different exchange? For example, purchased on Coinbase and then moved to Binance?
(00:52:10-00:53;04) Dennis: Yeah. Yeah exactly. That’s the same example we had here with the Uphold purchase. So, when you buy something on Uphold and then you transfer it into Ethereum or into your Binance account, you always, like, once it’s marked as an internal transaction, it always transfers the cost basis to buy the information. All of it to the next wallet in that case, Ethereum or in your case to Binance. And you will have that ready in your tax statement. So when you do that and you create a report at the end of the year, you will find and like, let’s say you dispose those or you sell those then at a later stage on Binance, and you will find in the report bought on Kraken, for example, and then sold on Binance. So, we will have that entire money flow automatically tracked within the software.
(00:53:17-00:54:04) Dennis: Yes. So, Phemex currently not, but Bybit, Bitmex, FTX, and all of this we do. Bybit doesn’t have an API that allows us to export the, like all the data we need. So, you need to use their CSV file, which sometimes could be complicated because it’s in their dashboard, sometimes you need to write them a mail depending on how much traffic they have on a platform. So, it really depends, but with Bitmex for example, and some other or FTX, you just connect your API keys and we import that. Same thing with Binance, futures, and the different other exchanges that have that. And then we import the P&Ls. We create the margin gains, losses, and create a separate statement per exchange in the tax report. So, it’s – you will find that all separated for exchange in different tables.
(00:54:05-00:54:24) Stephan: Perfect. Again, I think we have a lot of questions coming in here. This one’s for Clinton. So @Crypto Tax Fixer Please touch base on the staking. Is it considered business income? Now you’ve touched upon staking earlier on, but it might just be helpful just to provide a little more information.
(00:54:25-00:55:07) Clinton: We have – business income is an interesting idea here. Typically, it’s just to be considered other income. It’s the category. It falls into just other income taxes at your ordinary tax brackets. Now, if you had a business that you’re in partnership with other people or you would separately incorporated LLC that had assets that then did the staking then that would be business income. And the difference with business income would be that there are some more expenses that you can write off that aren’t allowed to the average investor certain interest expenses and investment costs aren’t there. But no that’s a good question.
(00:55:08-00:55:22) Stephan: Another follow-up I think Mika Douglas. Another question by Mika. This is a good one too, I have to say. So, do I need to report transaction-level accounting on federal return if I am filing as a Puerto Rico resident?
(00:55:23-00:58:20) Clinton: Well great. This is, just to set this up a little bit. Puerto Rico has a unique tax situation. It’s a territory. It’s not a state in the U.S., and it’s actually a separate country, but it’s a territory. Right now, they have a program for attracting investors, where investors’ income from trading, if you’re a resident of Puerto Rico, is not subject to U.S. taxes. It’s subject to Puerto Rican taxes, but the Puerto Rican tax rate is zero percent. Okay? So, by transaction level accounting, let’s just tease this out a little bit more. You still have to file a line item, what’s called form8949, which lists every single trade you sold, what I bought it for, and when, what I sold it for, and when. You have to list all of that. Now, what we do for, when you’re living in Puerto Rico is you may have bought that coin, let’s say you bought that coin for $6000 while you’re in the U.S. You moved to Puerto Rico tomorrow, all right? And Bitcoin is now $60000, and it’s – that’s a $54000 gain before you move to Puerto Rico. And now, or in the future, while I’m in Puerto Rico, I sell that coin for a hundred fifty thousand, okay? So, what we have here, when I file my taxes at the end of the year, part of that gain is U.S.-sourced up till the day I came to Puerto Rico. So, that $54000 is U.S. source subject to U.S. capital gains rates, etc., probably long-term holding, in this case. Secondly, the gain from $60000 to $150000 is $90000 for the gain. I have to report that on a line item basis. Yes, I do. However, you take the total, and you multiply it times zero percent tax, you get zero tax rate. So, that’s how things work. You have to report both of them, and it’s important to report both because if you get audited, you need to be able to show that and it’s an important thing. A lot of people who were small and medium traders are now large traders and whales, and they’re asking, hey, why don’t I go to Puerto Rico, and save a bundle on my taxes. You need to know that the IRS is focused on auditing people who are not complying with the Puerto Rican residency requirements. There’s a special initiative from the IRS large business and international division. A compliance campaign. They’re going after them now. I was talking to a lawyer in Puerto Rico yesterday. There’s about 4000 people come down for the investor plan that I just described, and that’s a pretty small number of people to audit. They’re all high value people. These are all super wealthy people with a million or two more possibly in Crypto. So, the U.S. government’s broke, and there’s a lot of rich people that are probably not as compliant as they should be in their taxes down in Puerto Rico. So, you know this is going to be a focus.
(00:58:21-00:58:38) Stephan: Perfect. I mean, wonderful answer and Mika thank you for asking two really good questions, bringing the best out of us here. This one is for Dennis. If we accepted the wallet page by mistake, can you reverse it on the platform?
(00:58:48-00:58:56) Dennis: I guess, if you mean that, like if you added a wallet by mistake, and you want to remove it
(00:58:57-00:59:02) Stephan: I assume, yeah. I think that’s what the question was if you accepted a wallets page by mistake, can you go back, and can you reverse that?
(00:59:03-00:59:23) Dennis: Yeah. So, you can do, like multiple things. You can either delete the historical data here, import new, you can connect the new address, you can rename it, you can just simply delete the wallet here and just get rid of it, and all of the historical transactions are deleted as well.
(00:59:24-00:59:38) Stephan: Quick and easy one that one, I guess. So, this is another one for you Dennis from Nara. How is Bitcoin options trading taxed and does Accointing.com support LedgerX exchange? So, maybe to get both you on this to be super interesting.
(00:59:39-01:00:03) Dennis: Yeah, I mean. So, the futures and all of those transactions we just import that, and we handle that as with the P&Ls based on the different trades you did. You will find that in the full data set as a margin gain, loss or a margin fee. Let me see, why it’s just not… What was the second part of the question?
(01:00:04-01:00:10) Stephan: Oh, there we go. Oh, there we go Dennis. I think the – you got a lot of tabs. [Laughing]
(01:00:11-01:00:35) Dennis: We don’t support LedgerX exchange. We support the Ledger exchange. You can easily connect LedgerX as a manual wallet at the trades with the form or the template. Just request, like, the connection with our support in our community board, and we can take a look at the different output files.
(01:00:36-01:00:42) Stephan: Awesome. I think just to bring Clinton on this. How is BTC or Bitcoin options trading taxed?
(01:00:43-01:01:09) Clinton: Option income is treated as ordinary income or short-term gain rates, margin trading same thing. It’s just, typically, margin trading tends to be, you’re selling the coin before you buy it. So, that’s typically a short term transaction and it’d be taxed basically as ordinary income.
(01:01:10-01:01:44) Stephan: Fair enough. Again, you guys are just answering these things nice and simple. That’s perfect. This is another question for Dennis, from Verdaan Vesisht. Sorry Verdaan if I’ve just butchered your name. So Dennis, If crypto are purchased in ROTH IRA exchange account then some are transferred to an IRA dedicated cold or dedicated to a storage wallet and then moved to another exchange (NOT ROTH IRA exchange) do you mind maybe helping him out of here a little bit?
(01:01:45-01:02:54) Dennis: So you purchase it in the normal exchange then you move it into cold storage that transfer should just be connected as an internal again and when you have that connected as an internal we move the cost basis into the cold storage wallet and then you move it back out into the exchange. We keep that original price for that specific bitcoin that you bought or other crypto that you have and then once you moved it back into the hot wallet and you move it out to another exchange also, it’s marked again as an internal, we keep the cost basis transferred out and you will have the original path later when you file your taxes. Depending on the tax method you chose. Like if you have FIFO or LIFO, it uses different tax lots to actually move out so, if you use fifo and you bought bitcoin at two different points in time you would use the oldest bitcoin. First, transfer out of the exchange account and moved it into the second exchange so that’s just based on this but in theory that moves around and we keep track of all the different movements.
(01:02:55-01:03:13) Stephan: Perfect! Thank you very much Verdaan, another for Clinton here by Jeremy Engel. So Clinton, what about writing off your losses? I’ve heard that the maximum losses you can write off against gains is $3,000! Is this accurate? Is it per position? Per asset?
(01:03:14-01:06:36) Clinton: This is a great question. So at the beginning I spoke about how we have gains and losses on every trade. We separate those short and long-term and we add the winners and the losers together. So in this case, he’s basically saying he has more losers that winners, so he’s got a negative amount. You are limited to only writing off $3,000. Let’s say you had net loss of $50,000 you can only write off three thousand of it in the tax year and the rest of it the 47,000 is what’s called a loss carry over to the next year. So in the following I start out at negative 47,000. Now that could be useful because next year let’s say Cryptos go way up and I make some sales I have a lot of gain. Well the first 47 is our 7,000 of gain is already offset by the lost I have so you know, it’s not wasted. However, I will say this that I have I know some individuals who are carrying like 900 thousand dollars in loss because they can’t they’re not getting enough gains to offset this lost right. Now let me tell you about a super powerful tax solution that’s available for people who would be high frequency regular high frequency traders who are you know never holding something more than like 30 days. This is called trader tax status section 475 the tax code. Instead of this is kind of help dealers, business, guys in the business of crypto or stocks do taxes they don’t treat them as capital gains events where I buy and sell you know like that instead they treat it like a business so I have an inventory I have a start of the year inventory value of all my coins. I buy more coins that’s like buying inventory I sell some coins that’s you know income and I have a closing position so the net change in my inventory position plus the income I made or lost during the year is considered my operating loss, it’s not a capital loss It’s an operating loss. Here’s what super exiting about the trader tax option is that it an up year it’s just like you had capital gains in a down year I could take all that lost right year in that year. So in this scenario, where the person had a 50 trading loss if he has doing a trader tax status option which you have to elect and file an election form before April 15th then, he could have taken a fifty thousand dollar write-off on his taxes that you know this year. That’s fantastic! I know a guy who completely wrote-off all his income brought it down to zero taxes that year and had a net operating loss carry over for the next year to write-of next year’s taxes is the way to avoid high volume traders. You don’t get stuck with this 3 thousand dollar loss limitation but that would be again you know this is a very sophisticated invested technique that requires a filing election by April 14th probably call our office to get details on that and to do the special form for preparation for that but it definitely if you trade four days a week every single week of the year this is the option for you might really want to consider it because and you can choose it after the year is over so you know if you have if this year turns out to be a losing year like 2018, then, this is the way you want to go.
(01:06:37-01:06:59) Stephan: Perfect! I mean I hope It’s not going to be a losing year. I hope we just keep on going up and up but you know your fingers crossed. Dennis this is one from ikamkar25, Dennis will you support other blockchains other than Eth like Polkadot or Binance?
(01:07:00-01:07:33) Dennis: Yeah, so we already do have a bunch of different blockchains we have dash dodge coin, DigiByte, Cardano, EOS, Litecoin, Binances smart chain, Ethereum classic I can go on like we have 25 or 30 different blockchains connected already with a different connection other blockchains that you might want to add just send us a message we can add the new blockchains and just keep track of that but most of the like the most important ones are the biggest blockchains also, tron and all these different blockchains we already have connected.
(01:07:34-01:08:04) Stephan: Perfect! I mean as I said you know being able to add I think as many you know opportunities for people to connect different things to exchanges wallets I mean super interesting stuff. Clinton, one for you here this from @wericc74 If an exchange has locked your account and is talking months to sort it out with no end in sight, how would you report under such a situation? Especially, if you needed the value for taxes?
(01:08:04-01:14:10) Clinton: Well this is a common problem I’ll just It’s probably worth mentioning for everyone listening that the Achilles heel of the crypto industry is record-keeping you know if each exchange has a priority and fulfilling your trade but keeping track of that is like you know it’s secondary thought I mean almost every major exchange has had days where they don’t even capture the transaction records you know these API keys are like 85 or 90% accurate on some exchanges there’s just holes in the record. Let alone in exchange that disappears on you got you might have a year’s worth of transaction history that just disappears so this creates a real challenge in terms of preparing your results and ultimately the way you approach that is using a forensic accounting technique where we kind of have a big box represents the missing exchange like let’s say Crypto cryptoria right we know that you move coins in here into the box and then other coins came out of the box and then we find these coins it came out of the box you know what value do we assign to these coins and that’s where we basically say well when did you get those let’s estimate he goes I bought those back in the summer of 2019 what was the value of that coin we estimated your estimate is better that anyone else’s estimate and this is a word of encouragement for everybody in this situation the IRS has no better records than you would all right so you know they have and a lot of the tools and the acquainting tool and all the other tools will come back and they’ll say you have a missing you know, try to sell a coin that you have no evidence of buying they’ll tell you it’s either a zero cost basis or missing inventory whatever they call it, it’s still the same problem. One thing we definitely know is you didn’t get it for zero dollars all right so your guess is better than anyone else’s and then what we find is, these coins that you moved into the box, we don’t have record of you ever selling them so your end of the year balance like on December 31st, everybody should take a complete inventory of all the coins you have on every exchange because what will happen is that the tools—the tracking tools will have no record of you actually selling coins. It’ll show up in your inventory you’ll need to do a manual adjustment to get those things out of there because they don’t exist they were lost on that exchange not a tax problem, but an accuracy of records problem. This is a major problem with the entire crypto industry and De-Fi only makes this problem worse because De-Fi exchanges don’t even keep transaction records they throw you off to pull the information of blockchain and the blockchains were never instrumented. To begin with to capture tax relationships and so it makes it very tough to connect the buy and the sell on the D5 transactions because they are not and they don’t have correlation features to them so, this is a tough problem keeping track of your records is going getting even tougher as we go forward in 2021. In the future, the absence of good records can really make you vulnerable to IRS audits I this is worth giving you a legitimate story here about an IRS audit I talked to an individual who was a programmer type and he used to experiment with different wallets he just liked playing with them he would move coins into a move coins out whatever and he was done with the wallet he’d throw it away go try another one. So during the audit you know they ask you to give a list of all your wallet addresses but he would have they could search the blockchain and they could see these coins are coming in from wallets that he didn’t have the addresses to because he never kept track of the wallet addresses on these wallets that he discarded, so the auditor has taken the position that all of these are income and since he was moving the coins in back and forth— back and forth you know they’re being repeatedly counting as income and it’s in a desperate situation for him. He’s in an extremely vulnerable place to prove this so I highlight this just to encourage everyone. You want to keep track of every wallet you have, you want to track the wallet addresses you never want to discard an exchange without knowing what the wallet addresses are on those exchanges all this information is of utmost important In protecting yourself you know the IRS everything that you’re missing can be a tool for the IRS to claim is as income. So even you know the issues with something like CryptoAPI that disappeared and you have coins coming in from crypto you know how do we defend that you know we really want to minimize things and keep it as good of records as you can of what you’re doing. I highly recommend especially in the D5 space that you keep it like a trading journal and hand write this. Don’t’ waste your time with a spreadsheet just, hand write it down then on such a date I moved x number of coins uni swap into this particular investment your handwritten contemporaneous. They call it as it happened is a powerful tool for evidence to. We can present to the IRS saying this is what happened write down I moved the Bitcoin from Coinbase over to bitstamp write down handwrite it don’t’ worry about the pieces don’t get overworked up about it. Your handwriting notation is going to be a powerful tool, plus, it will help you as you try to figure out what you did in the past. I mean, I had one client going through an audit and his tendency was to drink a lot of wine before he traded and he has no recollection of what he did back in 2017 so we’re having a challenge defending that, but I think a journal will go make everybody feel a lot better and safer in tracking you trading behavior in case you get audited.
(01:14:11-01:14:46) Stephan: Well I think it’s just like super also just generally for people in the crypto spaces you know really keep track of what you’re doing makes you know addresses it’s such a nasty industry it’s not perfect yet so I think that’s just great advice anyways. Clinton, you know make sure of what you’re at and especially if you’re trading. So I think this one goes for Dennis, here by @Larry Rishell. Will Accointing extrapolate token transactions i.e claim rewards/staking from the Cosmos hub?
(01:14:47-01:15:01) Dennis: Yeah so, at the moment we don’t have cosmos supported in Accointing but just add it to the community board, vote it up because we use a voting system to just prioritize the different things we import that.
(01:15:02-01:15:17) Stephan: I guess it’s a follow-up then from no name. Does Accointing calculate in a shorter form (or show every transaction w of taxes amount owed?) how can we fit all that in a tax form?
(01:15:18-01:15:52) Dennis: We fit that all in a tax form so the form 8949 has a summary like we have a summary form 8949 with the different assets that you disposed and it will just show up as a summary in here and we have the statement and the full-tax report so you have different files a summary that just has, for example, three different rows and you see all the different disposes you did sum up so that’s just one option to go for and the other one is obviously the full-tax report that you mentioned.
(01:15:53-01:16:17) Stephan: I guess, another one here for Dennis, they’re kind of coming in here is from @Kilis I rate the picture. So Dennis, does Accointing pull staked Crypto on like Bitrue or do we need to unstake to get records to transfer? Also, does Accointing support Celcius?
(01:16:18-01:16:38) Dennis: Yeah, so let’s start with Celcius, yes we support that so just connect it automatically bitrue at the moment, we don’t have an automatic import so, do the same thing just add it into the community board, ask for connection and upload it so the more upboards it has the faster it gets integrated.
(01:16:39-01:17:00) Stephan: Perfect: I mean, nice and short and this one I guess it’s for Clinton. From Acuity Taxes & Consulting. @Clinton How about QBI (20% deduction for a crypto business? If so, I assume it’s a “specified service or trade business?”
(01:17:01-01:17:36) Clinton: We haven’t had too many people pushing on this but you’re very vulnerable to it being a specified service or trade because it you know that QBI deduction is for you know active enterprises and generally a passive income structure like an investment holding company is not going to qualify for a QBI that doesn’t mean that if you were mining or doing some other activity that wouldn’t qualify for QBI or if you structured your company in such a way that the investment portfolio aspects of it are only a portion of the income then you could qualify for a QBI deduction.
(01:17:37-01:17:59)Stephan: Perfect! I think now we have one more here by @Megan Nystrom. Is there a difference with selling margin trades or making any sell to BTC vs USDT vs USDC?
(01:18:00-01:18:50) Clinton: Well, with margin trades you know you’re borrowing money to buy a coin then sell it later so you know you still have the situation of a buy versus sell, it’s just they’re occurring before the other so that’s a standard gain situation and it’s going to be probably short-term gains traded here and so we trade from BTC to a stable coin, it’s still a trade that has a gain on the sale of the BTC even if I were to go from say USDT to USDC you know, that is still a capital gains even, of course, they are both worth a dollar so it’s like minuscule gain there so but yes, the answer is, they are taxed the same way if you held them over a year would be a long-term arrangement.
(01:18:51-01:19:13) Stephan: Finally, I think this is slowly, I think the chat’s been amazing. But I think, we’re slowly hitting the end of this but I guess this one is by @Filip Mietka. Clinton, you mentioned 3 or 6 years for the statute of limitations for filing taxes. Can you elaborate who qualifies for which?
(01:19:14-01:21:23) Clinton: Well, you know you can fault your Congressman for making everything complicated at the, I mean IRS nothing simple there’s a booklet on how to pay your estimated taxes from the IRS it’s 55 pages long I mean seriously, you know why can’t just tell me how much it is I should fit on page. Now, the standard statute limitations is three years from when you filed it or two years from when you paid the tax on that return okay, assuming if you didn’t pay it at the beginning that would kick in. However, if the tax return has foreign demands in it that would should be reported on form 8938 or if the return actually had 48938 is foreign financial assets then it’s a six year statute of limitations. If you fail to report 25, if you under report 25 of. If you under report 25 of your income, then the tax return can be opened up for a six-year statute of limitation. If the IRS feels that you have been fraudulent in your entire return then they can completely blow away the statute limitations so you know of course it’s kind the question that they got to audit it to determine that you under reported by 25 right to go for the six years or that you are fraudulent and blow the thing away. So that’s what it comes down but for most people most crypto traders I’d say there to six years the qualifications on six years would be if you, let’s say you didn’t report a lot of your Cryptos that you didn’t report any of your Cryptos that year and you did make a lot of money, well then you might be exceeding the 25 income and then you might be in a six year situation so you know that’s kind of what it comes down to at this point, I think we’re gonna see that It’s gonna become very clear this year that the IRS treats all foreign exchanges such and need to be reported on form 8938 which means I think ultimately all crypto exchanges will go to a six-year audit situation. If you’re using foreign exchanges.
(01:21:24-01:21:44) Stephan: Perfect! Hey Philip I hope you wrote that down my man that was some golden advice right there. Now by Man on the Moon. I hope that’s where we are heading people with the price to the moon. So Dennis, where can I find out how much tax I have to pay in case I want to sell my crypto this year?
(01:21:44-01:21:48) Dennis: So for that, I’m gonna share my screen again.
(01:21:49) Stephan: Perfect.
(01:21:50-01:23:16) Dennis: So you can have two different options either you just go to this tool here and you move the slider to the left which is the current date and you will just see how much gains you have or for your bitcoin on the different exchanges . It’s important to check that for the different exchanges because it makes a big difference of like what asset you sell if it is on uphold or if it’s on BitMex. So that’s something you can do if you want to know like any specific tax gains that then get created want to like have the full overview for your tax report you can just also manipulate that a little bit and just create a withdrawal with the amount you want to sell. For example, one or my batter is dying you want to sell one bitcoin on BitMex just create like just as create a payment real quick. Remember to delete that afterwards, again so just create and then report for this specific year and you will find the summary of how much that increased or reduced your taxes. But if you just want to see the gain, you can find that here. The reason don’t show the actual act like taxable amount you have to pay to the government is because we don’t know your tax rate at this point right it can change on the depending on the entire taxes you owe.
(01:23:17-01:23:46) Stephan: Perfect! Final question here because we’ve been doing this now for almost 90 minutes so I have to say this some proper stamina gentlemen. Good stuff! This one is for you Clinton: so what’s your thought on exchanging WBTC-BTC 1:1 on Coinbase Pro, is it taxable? Rather for example, like depositing eth to mint WETH, this is an actual trade on the exchange.
(01:23:47-01:24:15) Clinton: Well, when you are doing the exchanging of a rap bitcoin for bitcoin that’s an actual trade whereas before when I’m depositing either I’m actually minting a custom coin which is like as I used before a receipt coin if you will and then you’re later giving it back to get your original coins back but in a straight-up trade of wrapped BTC for another BTC you know that is separating yourself away from your original ownership that’d be the difference there.
(01:24:16-01:24:35) Stephan: Perfect! I think you know we’ve done a great session tonight. Is there any final words. Dennis on your side, Clinton on your side. That you’d like to leave the chat and anyone else who you know wants to watch this. Any final words, any last recommendations.
(01:24:36-01:26:15) Clinton: Well I just you know people have a lot of questions and we’re trying to make cryptotaxaduit.com the place you go to get those answers highly recommend you get the membership the middle membership is the one that everyone’s going for it is 35% a month for the monitoring service. I described and we’re really excited we got a promotion going where you also get access to the course the master class on how to do your own bulletproof crypto tax return and this is gonna and we also show you how to use tax software olt.com / onlinetax.com it is one of the IRS free files. You can use the tax software for and it’s more powerful the turbo tax more powerful tax act hr block. It is probably more powerful than your local accountant’s tax return tax software so we show you how to use that software with our bulletproof methodology incorporating the tax results from your Accointing calculations in order to generate a tax return that you can really comfortable with and we’re working out some offerings that’ll be on the acquaintance webpage that you can actually then call up a consultant if you want some help. You know if you are stuck using Accointing or if you’d like to have a tax professional have a second option on the tax return that you prepared. You know save a bundle, do your own taxes first using free tax software. You know taxes were designed for you as an individual to know how to do it so go there. This is a great value and you know we’re going to put out information about the Puerto Rican solution we’re putting out information about other tax strategic tax savings options there here in the future. Thank you very much Stephan, for having us on here.
(01:26:16-01:26:19) Stephan: You’re welcome. Dennis, anything you’d like to close with.
(01:26:20-01:27:18) Dennis: Yeah, so thanks a lot for organizing all of this and all the questions. I’m gonna share my screen one last time to just quickly show because I saw a few people asking about pricing. To show the pricing page you can just find that on the landing page, you see the different packages and then in a few days you will find Clinton’s offering below those packages here and you can directly upgrade and have a consultant from Clinton helping you out with everything or just upgrade to the different packages. Clint mentioned so that’s something you can find her and then. I just recommend keep track of everything even if you just start trading import everything to Accointing. Keep track of all the investments completely for free don’t upgrade if you don’t need a report just use the platform and with that you will be date where future when once we really go to the moon or to mars.
(01:27:19-01:28:13) Stephan: Perfect! I mean thank you gentleman, honestly you guys have literally answered a whole host of questions. I think people are going to be leaving the Q&A the AMA with a lot you know a lot more confident when tax season slowly creeps up on everybody. So really, thank you guys very much. Thank you to the chat super chat, a lot of very, very good questions very active and super polite. I have to say, I’ve been on some chats where you get some weird some weird, weird stuff but really awesome so yeah, I’d like to thank you to Clinton and to Denis. Before you go just there is a 25% on all the tax packages again click on the link in the description below the discount code is crypto AMA. Thank you guys, it’s been a fantastic evening and good luck with paying your taxes.