Crypto Explosion: Tax Strategies Before Year End | Year End Tax Tips #5

Well, early Merry freaking Christmas. If you're a crypto investor, it's been a wonderful three or four weeks, Right? Maybe it'll continue up until Christmas Day and into the new year, and we'll just all be merrily moving along here through the holidays. Well, my name is Mark Kohler, and I'm a tax lawyer, and I want to give you real tax tips on what you can rely on that works. When it comes to gains in cryptocurrency. There's a lot of influencers out there talking about, blah, blah, you can do this. You can do this. Why not listen to an expert that's written multiple books, millions of downloads, podcasts, articles, and have the credentials as a lawyer and a CPA and in the industry for 20, 25 years and a crypto investor myself, I'm here for you. So if you have questions down below, if you're like Mark, dispel the myth. Will this work? Will this work? Will this work? You freaking throw it in there. I'm here for you. I want to give you some strategies that will work and give you some direction for the future. And so we're going to talk about maybe staying the course, what that means some offsetting strategies, some deferral strategies, and again, what to do moving forward. So we're going to break this down together, and then I'll answer any questions you might have, and we'll roll into Christmas together. Man. And what about xrp? Whoo. That's been my dark horse. Oh, it's been good. What? Just so fun. And a lot of my gains, and this is going to be. Well, I'll hold that one off. I'll tell you more about my gains in a minute, what I've been doing to save taxes on them personally. So, first option, we got the year end coming up. If you sell any crypto or transfer it, and we need to talk about that. If you have Solana and you're like, oh, I'll just move it over to xrp. I'll transfer. I'll exchange. You're like, well, I didn't go back to US$, so I don't have a taxable gain. Wrong. If you exchange crypto. If you exit a certain token and buy another one, exchange whatever the hell you want to call it. That is a sale deemed by the irs. And guess what? It's the blockchain. They have task force that watch this. If you get audited, you are screwed. There is no way to hide this. Don't think. Oh, well, the IRS will be nice to Me? Oh, ignorance is bliss. They'll just slap me on the wrist. No, it is called tax fraud, tax evasion or just plain old. You're going to have penalties and interest. Bend over. Not good. So remember, if you sell crypto to USD, obvious. If you exchange crypto for another token, that's deemed a sale. So keep that in mind. Now, option one, do you need to sell before December 31? Why? Why sell or exchange? Can you stay the course? That's option one. Now, if you're in dire straits or you feel like the run is over, hey, two weeks from now we could start to see a nosedive and you're like, I got to get out, I got to take my profits, then so be it. But if you can stay the course, then we don't have a tax problem for 2024. We can turn the corner into 2025 and open up the door to a lot more strategies. I'm down here to the bottom of the barrel because we're here in the 11th hour with four weeks left out of 52 weeks. Not good. So, you know, this is, this is barely what we could do to help minimize some pain if necessary. So first option, stay the course. Why sell, don't sell or exchange. Now, if you have to sell, we've got some offsetting strategies and a deferral strategy. Offsetting. What that means is you've got to find a write off that legitimately is going to offset the gain. So if you have $50,000 in gain, I need $50,000 in write off. The write off will offset the gain. Going and finding, oh, I'll write off my car or I'll go write off my home office or a computer. Investing in crypto is not a business. If you have a write off that you could use otherwise in your small business, do it. You should be writing off your home, office and auto and dining and travel and electronics and computers and cell phone. You should be writing all that off anyway if you have a small business. But if you just invest in crypto and have a day job or. Well, Mark, my business is investing in crypto. No, it's not. That's not a business. It's not. It's schedule D as in David. It's not schedule C and trust me, you do not want it on schedule C and paying self employment tax. So you are not allowed to go right off your car or your home office against your crypto gains because investing in crypto is not a business. So we've got to find a write off that is legitimate. That I can write off against my cryptocurrency. So if you do have a side hustle at all, a 1099 at all, even if it's just couple grand, I want to take a solo 401k write off. You can do up to 23,000 or 30,500, depending if you're 50 or older. And I can create the solo 401k for that little side hustle and take that write off for the solo 401k and offset maybe some crypto gains. The problem is, is I've got to take salary out of that small business or have income in that small business and in order to defer the crypto gain. So I wanted to bring this up and throw it out as an idea and also debunk it. If you don't have that small business and the income that you're already taking, if you already have a small business and income you're taking and you haven't done a solo 401k, we can throw it on top to wipe out that crypto gain or up to those dollar amounts. If you don't have the small business already with that type of income, we're hosed. So I'm going to put a question mark here because that's going to depend on your situation and if you have that small business income or not. And could we slap a solo 401k strategy on top of it? Now, as an aside, you cannot wait until December 15th to pull the trigger on a solo 401k at our office. We're done on December 15th because the IRS goes into their update mode and they turn off all their computers the last week of the year. If you don't have a tax ID number for a solo 401k by the end of the year, you don't have a solo 401k. So if you're going to go down this path, get a call with one of our tax advisors on our network. I'll give you a network of tax advisors you can find around the country that speak crypto and you can talk with them. They all speak Mark Kohler and crypto, and then pull this off before your end, hopefully. Now, I'll tell you that now that's over@markjkohler.com, go to the services above. Down to the network. There's hundreds of advisors and you can toggle it for those that have a specialty in cryptocurrency. Interview them. They may be your new best friend. Now, the second and third option. Again, I'VE got to bring them up. They're a long shot. The next one is real estate. If you already don't own some real estate, you're not going to have a write off there. And when I talk about real estate, I talk about rental real estate. Now for those of you that might have some rental real estate and you haven't done a depreciation cost seg strategy, we may be able to pull that off. Now if you're not a real estate professional or depending on your income, it may not work as well. Is it a short term rental like an Airbnb or is it a long term rental? Those are all factors. It could work for some of you. It's an option. Talk to your advisor about it. I'm going to put another question mark. The next one is oil and gas. I got some good ones here, but hang tight. We're taking the crap off the table that you hear a lot about. Oil and gas is a. Oil and gas is a tax strategy where you can take a depletion deduction and a depreciation deduction on the oil and gas equipment, depending on the structure of your investment. I love this. Do it myself. But you want to do it at the beginning of the year because you're getting the depreciation deduction for the entire year on the oil and gas rigs and the project. You can't buy in at the last day and get all the write offs for the whole year. So I'm going to take this one and put a line through it because I don't want any of you getting sucked into that one at the last minute. At the end of the year. We're going to come to moving forward here in a minute. The one that I like probably the most now, I want you paying attention to this one is buying a piece of equipment that you could rent and getting a tax deduction. Now, even if you have just a little bit of rent. Now hear me out. When you do that, you're buying into a business. So we unlock the business deduction and the ability to depreciate that piece of equipment far in excess of the income you may have received. Example, many of you have heard of Turo. You go rent a car with Hertz or Avis or whatever. You can also go to the Turo app and rent a car from an individual in a city where you're going. I have a lot of clients that do this as a business. They pick up a car, they put it on the Turo app, they rent it, they make cash Flow well in excess of the car payment. They pay off the car within a year and it's cash cow. That is called the Turo rental car business. Anybody can do it. So if you want to go out and buy an SUV or a truck or a car and put it in a Turo app, put it on the Turo app and rent it to others, you could depreciate up to 60% or more of that vehicle all in one shot. It depends on the type of vehicle you're buying. Now. The trick is you have to put it in service between now and the end of the year. That just means two rentals. I want to just see two rentals before the end of the year. You may even privately rent it before you get it on the Turo app, but then it ends up on the Turo app come January 1st. Another option there is outdoorsy. Some of you may have an RV sitting around on the side of your house already not being used, or you go out and buy a $50,000 $100,000 RV with your crypto gains. So this is again, you're selling your crypto and you've got a big gain. Take some of those gains off the table. You go buy an RV and rent it out on Outdoorsy. Very profitable as well, depending on the market you're in. That is a business. Now, I could write off 60% or more of that RV in the year you buy it, even though you only had a couple rentals in the last week of the year. That depreciation write off on the RV can offset the gains on the crypto. It's an idea. It's a business decision. You've got to look into it, do your due diligence, make sure it works in your market and you can handle it. And you understand the business model. But Turo and Outdoorsy are a very profitable small business strategy that allow you to harvest depreciation quickly on that equipment, which could be offsetting a gain on the sale of your crypto all in the next four weeks if you have to sell. All right, now I'm going to put a circle around that one because that one's probably your most viable option. Even though the Solo 401k could work for some of you, these other two, much more of a long shot now, deferring the gain altogether. So you don't. You're not trying to offset it, you're trying to defer it. I don't pay any tax at all. That is called a charitable remainder. Unitrust the crutch. We've been setting these up for years. We love them. And what you do is you're going to transfer your crypto without paying any tax into a charitable trust that now pays you out a percentage of the value for the rest of your life every quarter. You can continue to invest it as well. And as you build it, your quarterly payments go up until the day you die. It is crazy, but you can't just go pull out all of it and go buy a house or a new car. You have to wait for those quarterly payments. And when you die, the money goes to a charity. But you could fund some life insurance for your family if you want. With some of those payments. There's a whole strategy to it. I've got videos on YouTube on that. We have attorneys in our office consulting on it. I stopped by my attorney's office, Max. Max Merritt, on the way here to the studio, and he said he's had three calls today on this. But to pull off a charitable remainder unit trust before your end is tough because you've got to have the CRUT all set up with an institutional wallet. Kraken is our best bet for that on an institutional wallet owned by your crut. Transfer the crypto in, you're golden. But we got to pull that off in three to four weeks. It could be a stretch, but that's a good transition to talking about moving forward. If you don't need to sell right now before end of year, but you know you're going to maybe in Q1 next year. Let's get the CRUT in place. That's a great strategy to shelter all of that taxable income, hundreds of thousands of dollars in tax that you might be facing. But let's have the CRUT ready to go. Then when you're ready to sell, boom, you could pull the trigger. You can't call us up and go, okay, I'm ready. This is going to be three, four weeks out. So we want to get the CRUT in place now also moving forward. And I'll tell you about my xrp, which I'm not paying any tax on because I did not buy XRP. My 401k Roth account bought XRP. So when you fund your Roth or your 401k, it can turn around and buy crypto. And we've been doing that for years here at Directed IRA. You can set up a Roth IRA, a Roth HSA, HSA, a Roth IRA or Roth 401K. Today on Directed IRA.com Directed IRA.com youm can set up an account and this is the strategy moving forward. Quit investing in crypto. Let your retirement account invest in it. Now, I know some of you young people are like, well, I want to be able to access it. You can borrow from a 401k. Well, I'm going to maybe need it. No, you're not. Quit spending it. Holy crap. Do you know how many clients I meet with that are over age 50 that are scared to death and have no retirement? Let the money ride. Continue to invest in crypto. Gold, silver, stocks, business, real estate. Just do it in your retirement account and let it grow tax free. Someday it'll be there for you. And continue to invest in some crypto and real estate in your own name. Do both. I want two buckets. I want a tax free bucket and I want my personal bucket that I can go pull money out anytime I want. But just living over here where I'm always paying taxes doesn't make sense. Be feeding both dragons. You want a two headed dragon here. Both making your life and your American dream real, super important. So moving forward, we can look at all these strategies next year. We can look at a CRT next year and we're going to get a whole year of strategy to implement it. Not freaking three weeks. When you fully forward plan. And that's what the rich do. They save taxes. They build wealth. If you've got wealth in crypto, guess what? You've joined the 1 percenters. It's time to start playing the game. I hate to tell you, you're going to pay taxes the rest of your life. You're in the club now, so you ought to start learning the rules of the club membership. So let's get you over there and start feeding your Roth IRAs, your HSAs, and your 401Ks so you never pay tax again with your crypto. All right, well, I wanted to open it up to any of you that have a question, hate mail, love mail, whatever you got, let's bring it. I want to dispel any of the myths and answer some of these questions on crypto. Danan, what do we got?

One myth I'd like to dispel real quick is somebody's wondering if we're actually live or if this is pre recorded.

This is actually live. How do I prove that? Do I look at my watch and show you?

I guess you just answered their questions.

I'm answering your question. It's live. There we go. I go live every Thursday, every week. This week we're going early because I've got a live three day Workshop. It's only twice a year. It's the tax and legal360.com sold out in person, but you can get a virtual ticket. We are having training on cryptocurrency. Come check it out. Tax and legal360 and it's a tax write off for any of you that are business owners and you're gonna love it. So I'm headed over there right after this. So that's why I'm doing my live a little early this week. Next question.

The next question was actually, are you already at the conference and live streaming from there.

So we were gonna live stream from the conference, but it's so much tech to like move everything at the studio over to the event. But we are gonna be recording one of our podcasts there and that's, you know, on the DL. It's gonna be a surprise when we do it at the event.

Do you see any changes to capital gains taxes with Trump and the Republican Congress?

No, I don't see any changes with capital gains tax. Trump hasn't promised any changes with capital gains tax. You know what's funny? Someone the other day said, mark, I want to get out of capital gains tax. You want capital gains tax. What you don't want is ordinary income tax. See, capital gains tax is a good thing. When you hold something a year or longer, you pay less tax. You don't pay capital gains tax on top of your income tax. They're separate. So let me repeat that. This is really good for young people that haven't been in the tax system for a long time. When you go out and earn Money on a W2 or in your small business, you pay ordinary income tax. Those rates could be as high as 37%. Not good. And you put on top of that ACA or Obamacare and self employment tax. You can lose 50% of your income to taxes on your small business or your W2 without good tax planning. That's why you want a tax advisor. When you go invest and you go buy real estate or crypto or stock and you hold it at least a year, you get a lower tax table, you get to pay capital gains tax, and that's it. You don't have to pay any of this ordinary income tax. You just get capital gains tax, which is at the highest of 20% and lower. And so we want capital gains tax instead of ordinary income tax. So the longer we can hold an investment, the better it is. But I don't see any changes there. And that's okay. Trump has already said we're going to keep rates the same. They were going to go up with Biden automatically. They were set to go up. Trump's like, I'm extending it. Hell no. So it's a good thing. Next question, next question.

Are you applying to be a part of Doge and audit the irs?

I like that. You know, I'm going to leave it to Elon and Vivek. I think they're going to do a great job at Doge. We need more efficiency in the government. Absolutely. We all know it. And so I hope that we get some clarity on that. These little mouse movers. I thought it was so interesting to find out that since COVID many federal workers have been working from home and only have to come in two days a month. And so they're coming the last day of the month and the first day of the month, and then they've had these. The only way they monitor if they're working is to see if their mouse is moving. And there's now been equipment that people have been buying for months and months. Little did we know that actually move your mouse. And Elon had software to analyze mouse movers because they have a pattern. And he was busting people in his own company for saying they were working at home and they had a little machine moving their mouse around. So there is so many people taking advantage of. Not all. There's a lot of federal workers that are very, very valuable to us, but some that take advantage of the situation. Hopefully we can clean house, save some money there and give it back to all of us on Main Street. America. Saving taxes. I'd love that. Next question.

Can I take out a loan and, or line of credit against my crypto to then reinvest it into another asset?

You can, you can borrow against your crypto. The rates you would pay. And what institution is going to do that? It can be scary. Crypto goes down. It's called a margin call. This is why some of you know, if you enjoy history, it teaches us things. There's patterns. When you saw the stock market crash in the 20s and then the dot com crash in the 1990s, 2000s, there was people that were borrowing against their stock portfolio and having those proceeds tax free. But when their stock crashed, the banks called the note due and those, that's called a margin call. And there was people with millions of millions of dollars out on these loans with a margin call. And they were bankrupt in one day and they were jumping out of buildings and committing suicide because they, their life was over. They were too Focused on maybe the wrong things, I don't know. But a margin call is a very, very scary and dangerous thing. So borrowing against your crypto may sound great and you're going to deploy that money somewhere else. That money you deploy better be liquid and somewhere else that's not tied to crypto. So that if crypto fails and you've got to give that loan back, you can. That's the trick is you've got to make sure that is liquid enough to cover that loan if necessary. So it's very dangerous. Be careful.

All right, next question. I bought materials and equipment to start a candle making side hustle so we can employ our kids and earn income for the future. Roth ira. But we haven't sold any product yet. Do we need a sale in order to deduct things?

Oh my gosh. This is one of the best questions today and I want everybody to. I'm going to repeat that quickly. A family started a small business buying a bunch of equipment to make candles at home and to sell them online. Flea markets, you know, wherever, fairs. Great. That's awesome. Door to door, they're going to make candles and sell them. They want to take tax write offs for all that. And with the income they make, they're going to fund their kids, Roth iras and the entire operation would be tax free. Super cool. But you cannot take a deduction this year for any of that equipment. If you don't have a sale, you have got to sell some freaking candles in the next four weeks or that this is going to be a 2025 strategy. So do you have to go start your website and have thousands of sales? No. Go door to door in your neighborhood and sell some freaking candles for a hundred bucks. Done. You had some sales. Just get some sales done in the next three weeks. Whether it's door to door, online, mail order, whatever, just get those candles sold. Recognize that income in the business bank account and I would recommend a LLC at the least and for audit protection, maybe even going S Corp level because it's going to be a much less risk of an audit. So. So be very, very careful there. I want to point that out too. When I was talking about going with a Turo or outdoorsy business, I would drop that in an S corporation. Set up your LLC immediately. Get the vehicle or RV purchased. Do it through an S Corp this year. Your chances of an audit are 15 times less. If you're going to take all that depreciation you want to hedge against an audit on a schedule C. Schedule Cs are audited the most. Want to watch out for that Next question.

Okay, right here. And this will probably be our last question for the day. And this may be a big question, but what is the best first step for someone who is getting started in crypto investments starting January of 2025?

That's a great question. I would, I'm going to give several steps. The first thing is I would like to see you doing crypto in your individual name and in your Roth ira, like I was talking about with those buckets. Start doing both right away because the one in the Roth IRA will never pay tax again, ever. And if you've got a couple thousand dollars to spend in crypto investing, maybe do a thousand here and a thousand here or do 5,000 here, 5,000 here. Do some in your individual name, do some in a Roth ira. So that's step number one or step one and two, individual and crypto. The next thing is just get educated on cryptocurrency and be careful going after these unique coins that are out there, tokens that you've never heard of that might be the next coolest, hottest thing. You can lose your shirt real quick. So maybe just start with the basics. Buy some Bitcoin, buy some Solana, some Ethereum. Think of the top 10 that are most stable. You know, you may not be have a high mover, but at least you're getting in the game and starting to learn. Next, I would start listening to at least two to three podcasts of influencers on cryptocurrency and we're talking just one podcast a week and just start learning what's going on in the market. What are they predicting what's going on next? Join a community of other crypto investors, but preferably someone in the 20s. I take all my crypto advice from some young men and women in their 20s. They know what they're doing. I'm listing. And so I really like that because they're informed. Now, at our last conference, we did have crypto grandma there and she was amazing. An 80 year old woman investing in crypto inside her Roth IRA for her grandkids. And everybody swamped her and they're like, what are you buying? And so it doesn't have to be someone young, but someone that's informed and engaged, enjoying that community and start learning and then finally just have some thick skin. There's going to be some ups and downs, you're going to lose some money here and there. The crypto market's like this. Okay, don't freak out if you lose some money. Try stock market. It's just as crazy. So get informed, get involved, start investing and do it in two different buckets and just stay determined. Don't give up. Well, everyone, the American dream is still real, alive. I love cryptocurrency and the future that holds. Isn't it an exciting time? President Trump and his administration has already been very, very committed to helping the crypto industry provide more transparency and clarity and a place to go other than big banks. And I just love that. And so I think we're going to see a lot more stability in the cryptocurrency markets. The ETFs and NFTs. I'm sorry, ETFs, exchange rated funds. Thinking stock market for a moment, but NFTs and crypto and the. It's just there's so much I need to slow down there. But get involved, get engaged, get educated and don't give up on your dreams and continue to build that side hustle or that small business, because that's going to give us so many more tools to save taxes and build wealth in the future. Thanks so much. I'll see you at tax and legal 360 online or in person and see you next week for another live broadcast. Thanks.