The IRS Wants Your Crypto...

Their efforts to make sure we, as Americans that have cryptocurrency in some form or fashion pay our taxes. And we're going to give you some tips and strategies of ways to deal with that. So that brings us to the crypto tax summit, which is a two day event which is going to have so much of this information. I don't know, can we cover it all in an hour?

No, but we could cover it in two days.

Yeah, that's right, that's right. We can. It's going to be good. We're going to go to the whiteboard here in a minute. We got probably literally 10 points we want to make on how the IRS is coming after your cryptocurrency.

First thing, I, I want to talk about how our tax system works.

Okay?

Right. So we're a self reporting tax system. Okay. And I get this all the time. People come in and they're like, oh well, they're not issuing any kind of 1099. The IRS doesn't know that I own this crypto, whatever the case is. And so on our cryptocurrency transactions, we have to self report it. And the thing is they, they know, they're looking.

That's point number two. That is, that's point number two.

I'm getting ahead of myself.

Okay? Yeah, you're like, you're trying to jump point to. But point number one, everybod, everybody is. You have to know that under the IRS code, when you sign your tax return, you are self reporting. If you didn't get a 1099, it doesn't matter. It doesn't matter if you have a 1099 or you got a W2 or someone paid you in cash. If you say, well, they paid me under the table. No, you still need to report that if you lie on your tax return, you can go to jail. And what about defi. Are these some of these mysterious wallets in Eastern Europe? Do I, can I hide from the IRS with those?

No, you can't. No. And that's the thing, right, is that we're, we're getting all this cryptocurrency. Everything is publicly traceable on the blockchain.

Which brings us to point two, which I like what came out this week in Congress.

So yeah, there was a hearing a little while ago talking about, actually it was talking about criminal activities in the blockchain. And they were, they had a representative from Ukraine talking about sanctions and all that. But there was a, there's a company there, there's a few blockchains, Analytics Companies. But there was a representative from Chainalysis and they were asking them how much of this is used for illicit activity, which is very low, by the way. Anyway. But one of the questions that was interesting is they're like, well, somebody asked them, what transactions are you tracking to find this? And the representative from Chainalysis is like, well, all transactions, right? Everything is found in there. And so they're, they're looking at all of it. And granted, they're, they're mixers. And there are ways that people try to keep this private, but that inevitably is going to be broken, right? They're working on it. So.

All right, so point being looked at. I love it. Everything is viewable. So in. The IRS is going to be a big client of these analytic companies that can analyze blockchain, public blockchain transactions and work backwards to your transactions. Okay, so we've got. We are self reporting as citizens of the United States. Number two, there are companies already analyzing the blockchain and prepared to give the IRS reports when they want them. Number three, and then we're going to get on to our tax return, everybody. The third point I want to make real quick is as US Citizens, you're taxed on your worldwide income. Until you give up your citizenship, you're taxed on your worldwide income. Which that means even if Matt Damon in the movie Martian would have sold some potatoes to some aliens that flew by and stopped in and said, hey, you got some potatoes for sale? He's like, as a matter of fact, I do. And he sold him some potatoes. The IRS would be waiting when he got back down to NASA and they picked him up. They'd say, IRS would say, you owe us on that money you made selling potatoes to those aliens. That's how it works. You are taxed on your worldwide income. Now, there are some unique rules in Puerto Rico, but that's about it. So as a US Citizen, you're going to be paying taxes everywhere. So whether you own your crypto in a wallet where you think no one will ever see it, or you didn't get a 1099, it doesn't matter. You're taxed on worldwide income. And that goes back to point number one. We have to self report or you go to jail. That was my third point. Which brings us to the tax return. Do you want to tell everybody what's going on here? Corey, can you show us the whiteboard?

Yeah. And the IRS has a handful of topics that they're really focused on. Cryptocurrency is actually one of Them maybe

number one right now.

Yeah, it's up there. They're definitely taking a hard look at it. So on the tax return, you can see that Corey pulled it up right here. It says, at any time during 2021, did you receive, sell, exchange, or otherwise dispose of any, any financial interest in virtual currency?

Yes or no?

Yes or no? If you did, you better dang well check that box.

Yeah. Yeah. Now, here's a couple thoughts. Corey, you can take us off there. Everybody, I know many of you have already seen this. You know about it. But let me point out a couple points. The IRS did an FAQ frequently asked question release on their website that said if you purchase crypto, if you. All you do is purchase cryptocurrency, you can check the box. No, but you notice the word in there? When Darren read it, it said, did you receive any cryptocurrency? Now, receiving could be rewards from staking. It could be mining. If you. It could be what you say, airdrops. It could be a variety of ways you received crypto. You need to report that. But if you just simply buy crypto and you didn't sell any, you can check the box. No, if you had crypto and traded crypto for. If you say, well, I had Litecoin and I traded it for Ethereum in a phantom wallet last year once, that's taxable. That's got to be reported. Well, I didn't convert it to US Dollars. I didn't convert it back to my fiat. That's okay. It's taxable. So you've got to report all that. Now, I want to say, is extending bad. What's your take on extending?

Extending is perfect, especially in a situation like this, because we're, we're hoping and maybe a little bit expecting that the IRS is actually going to come out with future guidance here. Yeah, right. So if we can extend and they come out with some guidance here in the next couple months, it can make your taxes easier. The other thing is it brings down auto risk.

It does, it does. You know, people, okay, we're on the cusp. Ten days away. April 15th. Well, it's April 18th this year because the 15th is on a Friday. So you have until April 18th to file. Today's the 8th. You've got 10 days. Now, some of you are like, well, I just use TurboTax. And then you see that question on crypto, just file a freaking extension. It's form 4868. You want to have your extension filed and you actually reduce your chances of an audit. It's 4868. I was right. And if we go up to the whiteboard, Corey, a Form 4868 basically says I need more time to file my tax return. There's no penalty. You can go download this form online and just say, I need six more months. Now, it's not an extension to pay if you still need to. If you owe, you want to still send in some money, but you might get a refund. So. But it's six more months to file, not pay. You still need to pay some sort of estimate now over on my website, I'll take you there in a moment. I have an article on how much you need to estimate to send in with your extension. But people, just like Darren said here, you actually reduce your chances of an audit. You can wait to figure out your crypto story for last year and then file. It's okay, file an extension. That's probably one of the biggest messages from this I want to say podcast, but broadcast. So how much should I send in with my April 18th extension? So right here, if you go over to markjcohler.com I've got in here five general guidelines. And so these I've got examples in there. I've got a little tax table you can go through here and just kind of figure out what's it, how much should I send in with my extension? Easy schmeezy. People, I want to take a couple questions and give a book away. I saw that while filing tax return, Just say no. Okay, Mimi, I am glad you brought this up because this is something that I know you're probably just joking and I hope you are because everybody, if you do not file your tax return or an extension in 10 days from now, the penalties add up fast. And if you get audited and you lied about the fact you had some crypto transactions last year now and the penalties can be quadruple because you're now a criminal. And that's not a good thing. So everybody, what I would say, Mimi, is don't check the box, file an extension. Come to the crypto tax conference down in Miami in six weeks, learn some more strategies, then go file your tax return. By the way, our Miami event, two full days, so we're going to have a welcome reception, we're going to have a networking breakfast, both lunches. You're sitting at tables with like minded people that are doing the strategy that you are with cryptocurrency. You can choose a table on Metaverse, a table on NFTs, a table on capital gain, charitable trust. And then the last night, Friday night, we are going to have a party. Yes, all the nerds. We're going to have a cover band. We're going to have a cocktail party. It's going to be a lot of fun. You can watch the whole thing virtual. I'm going to give away a virtual ticket here in a bit, but come down to Miami. It's a lot of fun. We've got a room block. We're going to be at the Pullman Airport. Pullman. You don't have to rent a car. There's a shuttle from the airport straight to the hotel.

You.

It's going to be a blast. So Corey will have that link down in the comments below and you can just register@CryptoTaxSummit.com. okay, so, Darren, we talked about income worldwide. File an extension. Self reporting. Five years in prison if you lie on the first question on your tax return. We gave away a book. You said we passed over something pretty cool. What was your list? What do you want to talk about?

Yeah. And is it okay if I give a little bit of a story?

Yes, I love a story.

Literally got off a call 30 minutes ago with a client who's been trading cryptocurrency for the past five years. Ooh, okay. Just like what Mimi was unfortunately saying. Their accountant was like, oh, just check.

No, you're kidding.

I'm not kidding. Wow. And so seriously, if your accountant knows that you've been trading cryptocurrency and she had hundreds of thousands of dollars that she has made in cryptocurrency and her accountant is telling her to check. No. Kick that accountant to the curb.

Yeah, I get rid of them. Well, you could. You could definitely sue that accountant for that advice.

Absolutely terrible. But one thing that came up with her, though, and this maybe I don't know if this is where the accountant was going from, but what she thought was the case is that she's like, okay, well, I'm only taxed when I sell my crypto for US Dollars. And you earlier had mentioned if you trade Bitcoin to Ethereum, if you do anything right, you. Any trade, anytime you dispose of a specific currency is a taxable event. And that's when you have to go to whiteboard.

Corey. Let's do that, everybody. And then we're going to do some more questions here. There are three transactions that are taxable. Now we go over this in the first section of the summit. We spend a whole hour and a half just on capital gain strategies. Short term capital gain, long term capital gain. We'll come to NFTs here in a minute. But three transactions, if you sell your crypto to Fiat, you know, which might be US Dollars for you. You know, some of you watching here in the United States, you bought a coin, you trade it back to US Dollars, your fiat, that's taxable. What'd you buy it for? What you sell it for? Easy schmeasy. Oh, but there's more. Number two, you trade one crypto for another. So whatever you're trading that current fair market value for a new one, you have to look at what you bought the crypto for that you just traded that, that gain in the middle is tracked, is taxed. So trade one crypto for another, and then the third time your crypto is taxed is if you use it for a purchase. So you're using crypto in a purchase, like you say, well, I'm going to go buy a Tesla car. Now, one thing that you can do right now at our law firm, you can use our law firm or accounting firm services and pay for it with crypto. So when you pay for a purchase with crypto, it's as if you sold it.