Mark Kohler breaks down why crypto mining and trading face different tax treatments. Mining counts as a business subject to self-employment tax, while trading is passive income taxed like stocks. He outlines a framework to separate passive activities from operational ones so you can avoid self-employment tax on crypto holdings and rentals.
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With crypto, if you have an S corp, do you sell and buy back assets to determine payroll every quarter? If you're buying and trading crypto, it is not subject to self employment tax. You would never ever, ever put crypto in an S corp, you would do a crypto mine in an S corp because that's a business. But trading crypto is like trading stocks, it's passive. So in our trifecta we're putting passive income over here, we're putting operational income over here. So advisors out there, you want to build a trifecta for your client, you want to say okay, side hustle ll llc maybe full hustle, S corp passive, that's going to be rent, it's going to be trading, it's going to be notes, it's going to be my IRA, it's going to be my 401k, it's going to be rental property crypto. That all goes over here. Now I might use LLC for asset protection and certainly for rental properties and that would be owned by my trust. But operations, that's going to be selling a product, doing a service, it's going to be getting a 1099 that that's over here on this side and we have a wall between the two. This is going to be subject to self employment tax. This is not. We're trying to get capital gain over here. That's our long term play or no tax at all with a Roth. So you're going to build this for your clients and talk about this operational side, passive side. But crypto stays over here, no escort.
