In this video, CPA/Attorney Mark J. Kohler explains how the IRS taxes cryptocurrency across four primary scenarios. First, he outlines personal crypto investing, where gains are treated as short‑term or long‑term capital gains depending on a 12‑month holding period. Second, he describes buying crypto inside tax‑advantaged accounts (IRA, 401(k), HSA, Coverdell), noting that growth and withdrawals can be tax‑free when structured through an LLC. Third, he covers cryptocurrency mining, which the IRS treats as ordinary self‑employment income; he recommends operating the mining activity through an S‑corporation to capture the 20 % qualified business income deduction under the Tax Cuts and Jobs Act. Fourth, he explains mining inside retirement accounts, which triggers Unrelated Business Income Tax (UBIT) at up to 45 %; to mitigate this, he suggests using a C‑corporation “blocker” to lower the tax rate to the corporate 21 % level, allowing dividends to flow back tax‑free to the retirement account. Throughout, Kohler promotes his website, longer training videos, books, and a newsletter for deeper tax‑saving strategies.
Chapters
Hi, Mark Kohler here with another tax and legal tip. Talking cryptocurrency. Now, I know some of you believe in this big time and have some big dreams about the potential of cryptocurrency. Some are just dipping your toe into the water and learning about it. Well, we need to talk about how it's taxed and it's pretty exciting. I've got four different options for you here, and I tend to believe that some of these are going to be pretty exciting and you're not even aware of what your options could be. So let's break it down and talk cryptocurrency and taxation. Now, there's about four options in general, and as you watch other videos of mine or lengthy videos at my website, markjkohler.com I have long videos on how to save taxes and all of your business aspects and on your personal return. What I tend to do is explain things in left side, right side, short term, long term. So over here, short term income. And for those that have been followers of mine for years, you know, this is operations income, this is ordinary income, and this is passive income or more long term income. So we want to divide our worlds into two sides even when we're talking cryptocurrency. Now, three of the options are going to be over here with only one on this side. So let's talk first, the most basic option, because you might have a bucket of cryptocurrency that you're just investing with your own money. Maybe it's in your trust account, it's in your personal account. So we're just going to call this personal money. Now, when you invest in cryptocurrency, it's going to get taxed in one of two ways. Use a different color here. It could be either short term or long term capital gain. Short term capital gain is going to be any cryptocurrency trade where you buy currency, turn around and sell it, converting it back into US dollars within 12 months. So if you do it within 12 months, it's short term capital gain and it's taxed at whatever tax rate you're in. Long term capital gain is anything that you held longer than 12 months. And so if you bought cryptocurrency, sat on it 12 months, sold it, and converted it back into US dollars, you now have a long term capital gain. Now the IRS has decided that cryptocurrency is basically an asset. It's a capital asset. So it's either short term or long term based on how long you hold it now that's the most simple approach. In your personal investing number two option you might discover that you can actually buy cryptocurrency inside your IRA or your 401k, maybe even in your health savings account or in your kids Coverdell college account. I just had a phone call about that today. That's right. If you believe big with a cryptocurrency you could quadruple your money 10 times. Sky's the limit, right? Well you can create an LLC and then invest in cryptocurrency right inside your IRA, 401k, health savings account, Coverdell, all of that. And when that money comes out baby, it is tax free. Tax free. When it comes to cryptocurrency inside your retirement account. We've been setting up LLCs like these for years. Give us a call, we can hook you up. We're a law firm helping clients all over the country. Affordable investing in your IRA and 401k could even pay the legal bill. Now the third option and I'm going to create a little space here for this third option and that is when you start going into mining. Now you're not going to put on a little miners hat and get a pick and go out and find this cryptocurrency in a mountain or a stream somewhere. It's more digital, it involves computers and all sorts of processing machines. And for those into cryptocurrency you know more about mining than I do. But I know how it's taxed and here's how the IRS is going to treat it. It's going to treat it as ordinary income. So I'm going to jump over to this side for a moment and when I have clients that are doing cryptocurrency in their in a mining scenario. So you're mining for new cryptocurrency. You're not buying and selling, you're creating cryptocurrency with a mining machine. Let's say you're going to have to deal with self employment tax. So we're going to create your mining business for your personal. So this is your personal money. We're going to do it with an S corporation. So up here you're out here creating cryptocurrency. The profits are going to flow through down into you in a K1 and then and under the new tax cuts and jobs act you're going to get a 20% deduction on any profit you earned and that's going to flow right through and save you some big time taxes. And you can watch some of My other videos on this. And again, get to my website, get my books, get my ongoing video library. You're going to love it. Talk more about the Tax Cuts and Jobs act and the 20% flow through deduction with an S corporation. But if you're mining, that's where you're going to be. Number four. This might blow your mind too. Could your IRA or 401K do mining? Yes, it could. So if you take the same IRA account and you go out and create an LLC and decide to go mining, uh oh, it's ordinary income. So you're going to pay what's called UBIT tax, unrelated business income tax, which could be at the rate of 45%. We do not want that. Now I have clients that do mining inside the Roth IRAs, which is pretty cool. But to avoid this UBIT tax, what we do is we create a blocker corporation and it's. I'm going to just put it here in red, a C corporation, which now effectively cuts this tax rate in half and you're only paying 21%. And when all the dividends pay out, they flow right back into your IRA or 401k at 21%, the lower corporate tax rate and then flow to you tax free. So if you're mining inside your IRA or 401k, we want to use a blocker corp, then you've got these other options. It's exciting. I've got longer videos at my website and a weekly newsletter. You got to check it out folks. I'm here for you. I love making money and saving taxes. So if you're in cryptocurrency, hopefully this was a little helpful. Thanks so much for watching and if you found that helpful, please look in the description below. I've got links to my tax and legal library, my QuickBooks, training videos, how to start a small business, 50, 60, 70 videos, some as long as 30 minutes, explaining more information on tax and legal strategies that will change your life. Also, if you'd like to subscribe to my newsletter or check out my social media links, please click here. There are weekly free tips and strategies and articles that you'll find extremely helpful and I would appreciate it if you'd subscribe to my channel. I've got so many videos here. I produce every week on my YouTube channel and I'd love to give you a ping every time I shoot a new video. Thanks so much and keep living the American dream.
