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Crypto Catalyst for 2026 + Don't Overpay in Crypto Taxes · The Paul Barron Crypto Show

0:06
Speaker 1: Welcome back in Today is going to be a good one.
0:08
Speaker 1: It's the last podcast and show of the year. We're
0:11
Speaker 1: going to do it for my home studio this week,
0:13
Speaker 1: and of course today we're going to be breaking down
0:16
Speaker 1: some interesting areas around tax I won't say guidance, but
0:21
Speaker 1: at least strategies. And this is going to be coming
0:23
Speaker 1: with an expert today who's been on our show before.
0:26
Speaker 1: You guys will love it. Before we do get started,
0:28
Speaker 1: of course, I do want to thank our partners and
0:31
Speaker 1: our sponsors out there. If you guys are not checking
0:34
Speaker 1: out what's going on with of course I Trust Capital,
0:37
Speaker 1: you should be. And one of the things that you
0:39
Speaker 1: can do with I Trust Capital, and this is the
0:42
Speaker 1: thing we're going to be talking about today, is the
0:44
Speaker 1: wash sale rule and how if it applies to socks,
0:48
Speaker 1: which is more of the scenario, and it does not
0:51
Speaker 1: apply for crypto, but if you're holding a crypto ETF
0:55
Speaker 1: a little different place. So you guys, of course can
0:58
Speaker 1: start to participate in crypto ir by of course joining
1:01
Speaker 1: over at I Trust Capital very easy. They of course
1:04
Speaker 1: do a lot of articles and education give you a
1:08
Speaker 1: good example of this. I tweeted this out this morning
1:11
Speaker 1: just showing you kind of the differences between bitcoin and
1:13
Speaker 1: theem XRP and others. That is more under property, so
1:17
Speaker 1: it takes on a different tax alignment versus security.
1:21
Speaker 2: So check it out.
1:21
Speaker 1: If you haven't called your tax attorney or your tax person,
1:25
Speaker 1: you should always do that. But the number one thing
1:28
Speaker 1: you should be looking at is getting into a full
1:31
Speaker 1: blown CRYPTOIRA. You can do that over at I Trust Capital.
1:35
Speaker 1: Very easy to do, set up, no fees, you only
1:38
Speaker 1: pay for what you trade on. Use our link down below.
1:41
Speaker 1: It is one of the best and they've been one
1:43
Speaker 1: of the longest channel partners out there. One of the
1:46
Speaker 1: best places I can tell people without any regret is
1:50
Speaker 1: go over and set up a CRYPTOIRA. So check it out.
1:53
Speaker 1: You guys will love it. Let's get into the show
1:54
Speaker 1: today because the topic that our team kind of went
1:58
Speaker 1: back and forth on we do a tax thing. I
2:01
Speaker 1: know everybody hates sex, but I don't think so. I
2:03
Speaker 1: think this actually is going to be a show that
2:05
Speaker 1: you guys will like. So I want to bring on
2:08
Speaker 1: David Kimmerer, who has been on our show before. David,
2:12
Speaker 1: how are you?
2:14
Speaker 2: I am doing well? I'm ready for twenty twenty six.
2:18
Speaker 1: Let's kick it. Let's do it. I'm ready to it's listen.
2:21
Speaker 1: It's got to be better than what we had this year,
2:23
Speaker 1: for sure, because this year was an absolute train wreck.
2:27
Speaker 1: First of all, before we get started, tell us a
2:29
Speaker 1: little bit about what you're doing over coin Ledger. Give
2:30
Speaker 1: us a breakdown on where you guys are today.
2:33
Speaker 2: Yeah.
2:33
Speaker 3: So coin Ledger has been operating for now about eight years,
2:37
Speaker 3: and so we built a platform. It's kind of like
2:40
Speaker 3: a TurboTax for crypto, and so it helps crypto traders
2:44
Speaker 3: investors just automatically generate the necessary tax reporting that they
2:48
Speaker 3: need to squarely file their taxes.
2:52
Speaker 1: I love it too. And the fact that you guys
2:54
Speaker 1: have been around that long meant you've seen everything. You've
2:57
Speaker 1: seen it all. What would be one of the if
2:59
Speaker 1: you'll look back and say, man, this was one of
3:02
Speaker 1: the biggest issues for tax guidance and reporting in crypto
3:06
Speaker 1: or do you think we have yet to see it?
3:09
Speaker 3: To be honest, I think it's going to happen this year. Yeah,
3:12
Speaker 3: with the changes that are coming for tax year twenty
3:15
Speaker 3: twenty five. But of course there's been so many things.
3:20
Speaker 3: The ones that come to mind are DeFi. When DeFi
3:22
Speaker 3: came around really twenty and twenty twenty one that put
3:26
Speaker 3: a whole bunch of complexity in the world just because
3:29
Speaker 3: so much more on chain activity was happening. But like
3:32
Speaker 3: I said, I think this year, with ten ninety nine
3:35
Speaker 3: DA and the per wallet tax reporting requirements that are
3:38
Speaker 3: now in place here in the UF, it's going to
3:40
Speaker 3: cause unfortunately some complication, a little bit more friction for
3:45
Speaker 3: the everyday investors to accurately report their gains and losses.
3:49
Speaker 2: And so that's a big deal.
3:51
Speaker 1: Okay, so explain the per wallet requirement that goes into
3:54
Speaker 1: effect in twenty six.
3:56
Speaker 2: Yeah.
3:57
Speaker 3: So essentially, historically most to crypto investors, accountants and tax
4:02
Speaker 3: software providers reported your gains and losses on a universal basis.
4:08
Speaker 3: And all that means is if you had a coinbase account,
4:11
Speaker 3: a ledger wallet, maybe a cracking account. From an accounting standpoint,
4:16
Speaker 3: we could combine all those transactions into a single ledger.
4:21
Speaker 3: So then when you sell, trade, or dispose of crypto,
4:24
Speaker 3: we can calculate all of that gain loss as if
4:27
Speaker 3: it all occurred within a universal ledger. And that just
4:30
Speaker 3: makes the accounting a lot simpler because if you have transfers,
4:37
Speaker 3: like thousands of transactions it's just going to allow your
4:39
Speaker 3: cost basis to more seamlessly flow through as the software
4:43
Speaker 3: or your accountant is doing those calculations. If you're in
4:46
Speaker 3: taxiar twenty twenty five, which of course taxes are doing
4:49
Speaker 3: twenty twenty six, you have to report everything on a
4:53
Speaker 3: per wallet basis, meaning all of your transactions that happened
4:56
Speaker 3: on Coinbase, the gain loss associate with those have to
4:59
Speaker 3: be fully scoped solely to the Coinbase wallet. Same with
5:03
Speaker 3: meta mass transactions, same with what happened on your Ledger.
5:06
Speaker 3: And just what this means is your data accuracy as
5:10
Speaker 3: an investor has to be so much more clean and
5:14
Speaker 3: perfect every transfer, every time you move crypto from Coinbase
5:17
Speaker 3: to Ledger, any incoming transaction, anytime you paid so much.
5:21
Speaker 2: Everything under the.
5:22
Speaker 3: Sun has to really be perfectly categorized so that your
5:27
Speaker 3: cost basis transfers into each wallt as you're moving things around.
5:32
Speaker 3: And just the reality is most crypto investors, if you're
5:36
Speaker 3: a little bit more savvy than just let's say a
5:38
Speaker 3: Coinbase account, that hasn't been the case for you.
5:41
Speaker 2: And so it's just going.
5:43
Speaker 3: To be a little bit more difficult, a little bit
5:45
Speaker 3: more cumbersome for people to do that data exercise of
5:48
Speaker 3: getting everything calculated and reconciled.
5:51
Speaker 1: Is this like a lot of the tax rules right
5:55
Speaker 1: now where you have to keep all of this in
5:58
Speaker 1: record on your side if it's ever called you're not. Actually,
6:03
Speaker 1: are you having to report the entire wallet into the
6:06
Speaker 1: IRS now under this new guide or only you just
6:09
Speaker 1: need to keep it separate when you do report it.
6:12
Speaker 2: That's a good question.
6:13
Speaker 3: So the big reason why this change is happening is
6:16
Speaker 3: because for the first time this year, at the end
6:19
Speaker 3: of January, every US crypto investor will receive a new
6:24
Speaker 3: tax form which is called ten ninety nine DA. And
6:28
Speaker 3: this is similar to other ten ninety nine's that you
6:30
Speaker 3: may be familiar with. Let's say, if you trade stocks, right,
6:32
Speaker 3: you're used to getting one of those at the end
6:33
Speaker 3: of the year. Well, for the first time, this is
6:36
Speaker 3: coming to crypto. So Coinbase will send you a ten
6:39
Speaker 3: ninety nine DA and they'll also send that identical form
6:42
Speaker 3: to the IRS.
6:43
Speaker 2: So they'll generate two. One goes to you the taxpayer,
6:46
Speaker 2: one goes to the IRS.
6:47
Speaker 3: And so that form, the way it's structured is scope
6:52
Speaker 3: to the wallet. So the IRS now is mandating that
6:54
Speaker 3: you the taxpayer also have to scope things to the wallets,
6:57
Speaker 3: so mostly lines up with that ten ninety nine to
7:01
Speaker 3: your question, though, yes, the US operates on you know,
7:05
Speaker 3: the taxpayer is reporting their incomes.
7:08
Speaker 2: The IRS is only.
7:09
Speaker 3: Going to make you verify everything is if you get
7:11
Speaker 3: selected you're a lucky win eror to get audited for
7:13
Speaker 3: an audit, then you have to show all that accounting
7:16
Speaker 3: exactly how everything lines up. So yes, you do have
7:20
Speaker 3: to report it on that per Walt basis. No, you're
7:22
Speaker 3: not showing that exactly to the I R s R.
7:25
Speaker 3: You're reporting your income. It's a little more nuanced than that,
7:28
Speaker 3: but hopefully that answers.
7:30
Speaker 1: The way I explained it, or when I shouldn't say,
7:32
Speaker 1: I my tax attorney explaining is like, it's just like
7:35
Speaker 1: when you're taking a company vehicle. You you're logging all
7:38
Speaker 1: your miles for you know, company use, but you're not
7:41
Speaker 1: submitting your log unless you're audited. You're just taking your
7:44
Speaker 1: lump sum as your tax deduction for company use. So
7:48
Speaker 1: similar in that, I guess in that scenario talk to
7:51
Speaker 1: me about because this gets kind of interesting when and
7:55
Speaker 1: I think I saw you talk about this on a
7:56
Speaker 1: podcast where coinbase is no they're reporting out this DA
8:02
Speaker 1: to the ten ninety nine DA based on the full amount.
8:06
Speaker 1: They don't show it as your profit that you gained
8:10
Speaker 1: like you would see on a tax report coming from
8:14
Speaker 1: Robinhood or from you know, Swab or somewhere like that.
8:17
Speaker 1: Why is that the case here?
8:19
Speaker 3: Yeah, So that's the biggest problem really this year is
8:24
Speaker 3: because the IRS, the industry told the RS how much
8:27
Speaker 3: of I don't know if I can say, but it
8:29
Speaker 3: shit show this is going to be for tax payers.
8:32
Speaker 3: And so as part of this transitionary period they ire said, okay,
8:36
Speaker 3: in tax you're twenty twenty five, mister exchange, mister Coinbase,
8:41
Speaker 3: I'll only force you to report the proceeds for all
8:44
Speaker 3: of your customer's transactions, which is just the sale price.
8:47
Speaker 3: Let's say I sold one bitcoin on coinbase, okay this
8:50
Speaker 3: year and this year only. Coinbase will only report the proceeds,
8:54
Speaker 3: so I'll say fifty thousand dollars okay. It will not
8:57
Speaker 3: be required to report your cost basis like you said, see,
9:00
Speaker 3: I'm normal to be if you were any equities.
9:03
Speaker 2: What that means is the.
9:04
Speaker 3: IRIS will have kind of your top line sales, like okay,
9:07
Speaker 3: David sold five hundred thousand dollars of crypto this year,
9:11
Speaker 3: but they don't see that. Maybe my basis was four
9:13
Speaker 3: hundred and eighty thousand dollars right and most likely in
9:16
Speaker 3: the half of five d thousand, twenty thousand dollars capital gain.
9:20
Speaker 3: That's the only income I have. Yeah, the IRS is
9:22
Speaker 3: just going to see, oh, he sold five hundred K
9:24
Speaker 3: of crypto. I need to look at his tax return
9:27
Speaker 3: and see what was his income on that. And if
9:29
Speaker 3: you can't show and prove your basis, you can run
9:33
Speaker 3: into sticky situations because the IRS can come and tell you, Hey,
9:36
Speaker 3: you know, we're going to treat this all as income
9:38
Speaker 3: if you can't show us how.
9:40
Speaker 1: Coinbase are this. Coinbase shows that they show your basis.
9:45
Speaker 3: They legally they are not required to. Now, yes, Coinbase
9:48
Speaker 3: does a better job than some other exchanges, but on
9:52
Speaker 3: ten ninety nine DA, they're not going to show that
9:54
Speaker 3: this year in the future as again, but you would.
9:58
Speaker 1: Be able to use start interrupt do you You would
10:00
Speaker 1: be able to use Coinbase's documents though, to show your basis,
10:04
Speaker 1: would you not?
10:05
Speaker 3: Yes, as long as coinbase has that data. So if
10:09
Speaker 3: you transferred your crypto into coinbase or out of Coinbase,
10:14
Speaker 3: that's where they don't even know what your wholder period was,
10:17
Speaker 3: what your basis is, which is needed to report gains loss.
10:21
Speaker 3: So that's where these forms get to be incomplete because
10:26
Speaker 3: for some transactions, Coinbase might not even.
10:28
Speaker 2: Have the data.
10:29
Speaker 1: Yeah, this is going to be a nightmare for twenty five.
10:32
Speaker 1: I think this will be the year that the irs
10:35
Speaker 1: reckons and probably will go we have no idea kind
10:39
Speaker 1: of thing.
10:39
Speaker 3: Hopefully what money is on ten nine DA they send
10:44
Speaker 3: an individual page per transaction, which is absurd. They will
10:49
Speaker 3: receive billions of ten ninety nine das because they're not
10:53
Speaker 3: They didn't even structure the form so that it's like
10:56
Speaker 3: an Excel sheet where it's like line by line, it's
10:58
Speaker 3: a full page per disposal, and so it's just comical, right,
11:02
Speaker 3: It's like, what do you guys think that is.
11:04
Speaker 1: Going to I mean, that's going to blow it up.
11:06
Speaker 1: I mean it's going to blow up the cyst that
11:08
Speaker 1: well all right, well let's let's go on from there,
11:11
Speaker 1: because that sounds like a mess that's getting ready to brew.
11:14
Speaker 1: Do you think we're going to see because this is
11:17
Speaker 1: kind of a catalyst video to talk about not only
11:19
Speaker 1: tax positioning, but what could come in twenty twenty six.
11:23
Speaker 1: Do you think we'll see a significant tax alignment, especially
11:29
Speaker 1: from a regulatory standpoint, coming from Congress this year?
11:32
Speaker 3: Do you think we'll get it? I think it's already
11:34
Speaker 3: set in place. Taxa on crypto actually is one of
11:37
Speaker 3: those spots that's been pretty clear cut, and there's there's
11:42
Speaker 3: not going to be a ton of change. It's going
11:44
Speaker 3: to be a painful process to get to the state
11:48
Speaker 3: where ten nine DA is serving its intended purpose. I
11:51
Speaker 3: bet it'll take three to four years before all these
11:54
Speaker 3: data problems get sorted out. But I think it's very
11:57
Speaker 3: unlikely that like tax policy around crypto will change it
12:00
Speaker 3: at all.
12:00
Speaker 1: Okay, all right, what about like the wash rule? How
12:03
Speaker 1: does that play out right now? Because that is one
12:05
Speaker 1: of the things people are dealing with today, literally the
12:08
Speaker 1: last day of the year.
12:09
Speaker 2: You know, they're going.
12:10
Speaker 1: Out selling all their bitcoin and going ahead if they
12:13
Speaker 1: had some gains, because I know there's a difference on
12:16
Speaker 1: capital gains. If you didn't have any gains, you can
12:19
Speaker 1: only take up to what is it, three K on
12:20
Speaker 1: a loss. If there was no.
12:22
Speaker 3: Heroine, deduct three thousand dollars of capital losses against your
12:26
Speaker 3: ordinary income. Yeah, then the rest will roll forward, so
12:29
Speaker 3: you can claim it in future years against other income,
12:31
Speaker 3: but up to three thousand of losses against your ordinary game,
12:35
Speaker 3: so that's like income from your job, and that's unlimited
12:38
Speaker 3: against other capital gains.
12:40
Speaker 1: Yeah, so if you have capital gains, that maybe you
12:42
Speaker 1: Because most people that bought crypto this year, if you're
12:45
Speaker 1: in bitcoin, ethereum, XRP, almost every token out there, you're
12:48
Speaker 1: probably down right now if you purchase this year, unless
12:53
Speaker 1: you may have got you know, some of the highs
12:54
Speaker 1: or lows. I mean, there's some nuances there, but a
12:56
Speaker 1: lot of people that may be purchased in twenty three,
13:01
Speaker 1: twenty four and are taking profits. You know, they've got
13:04
Speaker 1: some capital gains. So there is an opportunity if they
13:07
Speaker 1: did have some, to be able to get full exposure
13:09
Speaker 1: to a true tax loss harvest scenario that plays out
13:13
Speaker 1: in the Wash rule. Of course, if you're in that position,
13:16
Speaker 1: as I understand it, tell me if I'm wrong, is
13:19
Speaker 1: you can sell it today December thirty first, as we're
13:21
Speaker 1: recording this, rebuy it on January first. It's a new
13:24
Speaker 1: acquisition and I can take that harvest for last year.
13:28
Speaker 2: YEP, that is correct. Crypto is unique in that way
13:31
Speaker 2: based on it.
13:32
Speaker 3: Does that stick around or do you think that's gone well,
13:34
Speaker 3: They've tried to close it in the past. It's hard
13:38
Speaker 3: to do because it's unlike that all cryptos will ever
13:42
Speaker 3: be defined as secreties. And that's kind of the trigger
13:45
Speaker 3: to enable the wash sale rule to come into place.
13:49
Speaker 2: So we'll see. I to be honest, don't think it will,
13:51
Speaker 2: but now we'll see.
13:53
Speaker 1: Let's talk about you look at market crashes, okay, and
13:58
Speaker 1: kind of managing them. We have seen a handful of those.
14:01
Speaker 1: The October tenth the course is the one that everybody
14:04
Speaker 1: will refer to. We saw liquidity events this year. It's
14:07
Speaker 1: possible we could see liquidity events in twenty twenty six
14:11
Speaker 1: that could be more catastrophic. And if we roll into
14:15
Speaker 1: twenty twenty six and we're setting on these kinds of issues,
14:19
Speaker 1: is there anything from a tax standpoint I'm talking about
14:23
Speaker 1: now into twenty twenty six that you should do as
14:28
Speaker 1: just you know, regular housekeeping every month to maintain and
14:33
Speaker 1: stay up with what's happening in the market.
14:35
Speaker 3: I think the biggest thing is just have good transaction
14:38
Speaker 3: data hygiene, keep your lists clean of like what platforms
14:43
Speaker 3: you're trading on, have tight records. Obviously, coin ledger is
14:47
Speaker 3: a tool that helps with that. You don't have to
14:50
Speaker 3: use coin ledger, just make sure you keep records of everything,
14:53
Speaker 3: because let's say next year again when maybe it's a
14:57
Speaker 3: good opportunity again to harvest some of those losses. If
15:00
Speaker 3: you don't have good records of what you did, you
15:02
Speaker 3: can't see where you stand at any given time. So
15:06
Speaker 3: I always just recommend keep a tight account of the
15:10
Speaker 3: exchanges you're trading on, the self custaed walllets you use,
15:13
Speaker 3: and all of the transaction data that's associated with all
15:16
Speaker 3: of that.
15:17
Speaker 1: All Right, you get into this whole issue of dead coins.
15:20
Speaker 1: A lot of people are holding tokens that either went
15:22
Speaker 1: to zero. You know, there are several out there. Most
15:26
Speaker 1: likely twenty six will reveal its ugly head of more
15:29
Speaker 1: of those kinds of assets that are going to zero.
15:33
Speaker 1: You know, and listen, I've got a few. What do
15:35
Speaker 1: I do with those? Is it just a right off?
15:38
Speaker 1: Do I have to eat that? What's the potential here
15:41
Speaker 1: for those?
15:42
Speaker 3: Yeah, if you want to realize the loss on it,
15:45
Speaker 3: I would recommend disposing of the asset. There are some
15:48
Speaker 3: services out there who will facilitate a trade for you
15:51
Speaker 3: even if it's in a liquid market, which will allow
15:55
Speaker 3: you to dispose of that dead coin formally and then
15:58
Speaker 3: you can capture that at a loss. And so that
16:01
Speaker 3: is another great way you can do this for NFTs
16:03
Speaker 3: as well. Any that's just dead, I would dispose of
16:07
Speaker 3: it if you truly don't want to continue to hold it,
16:10
Speaker 3: and then capture that capital loss.
16:13
Speaker 1: We had a conversation with another tax expert, and I
16:17
Speaker 1: am still on the fence as to what is the
16:20
Speaker 1: right answer here as we get into more DeFi strategies
16:25
Speaker 1: that are being deployed. Now, so you've got we'll start
16:28
Speaker 1: with just stable coins and the yields that those provide
16:32
Speaker 1: back to you through DeFi through some of these wallets
16:35
Speaker 1: that are paying yield in some cases even where we
16:38
Speaker 1: go in I'll keep the vault topic separate, but on
16:43
Speaker 1: regular wallets, I'm taking yield in three four percent. Even
16:46
Speaker 1: if you're getting yield on that, is that just treated
16:50
Speaker 1: as regular income and that's pretty much it.
16:53
Speaker 3: Yeah, of course there could be different specifics, but generally speaking, yes,
16:58
Speaker 3: that is ordinary income. So it's just like treated as
17:01
Speaker 3: the same as income you earn from your job and
17:05
Speaker 3: the income you recognize on it becomes the basis in
17:08
Speaker 3: that property moving forward. So if I just simple earned
17:13
Speaker 3: one x y Z token and it was worth ten bucks,
17:16
Speaker 3: I would recognize ten dollars of or, and then if
17:19
Speaker 3: I sold it later for twenty dollars, then that's a
17:21
Speaker 3: capital gain of ten dollars.
17:24
Speaker 1: Yeah. Yeah, Okay, So you get into this whole issue
17:28
Speaker 1: with vaults and you're not actually transferring your asset in there,
17:32
Speaker 1: They're giving you a token that is a receipt. Essentially,
17:38
Speaker 1: does that equate to a taxable event? And for the
17:42
Speaker 1: gains that I get in that vault, in that receipt
17:45
Speaker 1: if I don't sell them, are they gains or am
17:50
Speaker 1: I just taking that as income?
17:51
Speaker 2: How does that work?
17:54
Speaker 3: This is one that can be interpreted reasonably either way.
17:59
Speaker 2: From tax professionals.
18:01
Speaker 3: Okay, so some on a conservative basis would say, hey,
18:04
Speaker 3: you should be recognizing income as if bring value. Again,
18:08
Speaker 3: it does depend on the mechanism of the smart contract
18:10
Speaker 3: because these things are built differently. And then some would say, no,
18:13
Speaker 3: you only will recognize capital gain once you trade back
18:17
Speaker 3: out of the position, and then you realize whatever gain
18:20
Speaker 3: or loss has happened based on that a cruel mechanism.
18:25
Speaker 3: So that one is tough. I can't be like it's
18:27
Speaker 3: this way way. It can be either, and you.
18:30
Speaker 1: Could depend against it if you were trying.
18:32
Speaker 3: It just depends what type of position you're comfortable taking
18:35
Speaker 3: on your tax return. Some people want to take an
18:37
Speaker 3: aggressive position and their tax professional says, yep, you're good, right,
18:41
Speaker 3: you know, sign that tax return.
18:43
Speaker 2: So I'm like, nah, I'll do it the other way.
18:45
Speaker 1: Yeah. Most of these are you know stable coin, you know,
18:49
Speaker 1: tac tactics that are being held in some of these vaults,
18:51
Speaker 1: and fairly significant yields, so that in some cases if
18:55
Speaker 1: you're holding USDC tether or even r l USD. I
18:58
Speaker 1: saw this the other day with r l us D
19:00
Speaker 1: jumping into almost ten percent yields on what they were getting,
19:04
Speaker 1: and this is a receipt for that if you ever
19:08
Speaker 1: make that swap back. So that's when you know, and
19:11
Speaker 1: I don't know. I had Mark oller On. We talked
19:13
Speaker 1: about this at depth, and I kind of disagreed with
19:17
Speaker 1: them because I said, it's just not a sale and
19:19
Speaker 1: I'm not. It's like any other asset that I haven't sold,
19:22
Speaker 1: you know, and I haven't transferred it. I still have
19:24
Speaker 1: the asset. It's just you know, tied into that to
19:27
Speaker 1: that vault's kind of like a loan. I guess in
19:29
Speaker 1: a way, let's talk about loans because you've got morpho
19:32
Speaker 1: on coinbase. We're seeing this explosion with crypto lending right now.
19:38
Speaker 1: How and what should I be doing around my crypto loans?
19:43
Speaker 1: Are my service fees, interest, tax deductible? Do I have
19:48
Speaker 1: any kind of benefits of crypto loans besides you know
19:51
Speaker 1: the market benefit.
19:53
Speaker 3: Yeah, that's another one that'd be good to get your
19:57
Speaker 3: your full tax lawyer on because it can depend again
20:02
Speaker 3: on the nature and the structure of how this loan
20:05
Speaker 3: is operating. But the nice thing is when you take
20:08
Speaker 3: a loan out against your crypto, that's not a taxable event.
20:11
Speaker 3: And so yeah, it's on the interest side that you
20:13
Speaker 3: can be crewing income on that.
20:17
Speaker 2: Well.
20:17
Speaker 1: And in some cases now there are projects, I mean,
20:21
Speaker 1: there's strategies now that you can take your USDC pledge
20:25
Speaker 1: it into Morpho, earn income off of that USDC because
20:29
Speaker 1: you're lending it out. Now that's revenue to you. So
20:32
Speaker 1: I'm looking at that as ordinary income. I'm assuming that
20:35
Speaker 1: it's treated that way. So it's intriguing as we continue
20:39
Speaker 1: to see this. This was an article I wanted to
20:41
Speaker 1: show you this that hit this week. And it's a
20:45
Speaker 1: lot of crypto billionaires out there. I guess there's a
20:48
Speaker 1: bunch of crypto billionaires, but apparently they're the biggest losers
20:52
Speaker 1: of twenty twenty five and pretty significantger losers as well.
20:56
Speaker 1: Some of them in DEXes, some of them in exchanges
21:01
Speaker 1: that were either hacked, as we saw many hacks this year.
21:05
Speaker 1: What happens if you run into an exchange that goes bankrupt,
21:10
Speaker 1: got hacked, or you know, we just end up seeing
21:14
Speaker 1: nefarious activity, much like what we saw with FTX. What
21:17
Speaker 1: happens on my tax position? For those Can I just
21:21
Speaker 1: immediately take those as losses if I lose all my
21:24
Speaker 1: capital in there?
21:26
Speaker 2: So most as I am not.
21:29
Speaker 3: Unfortunately, the IRIS has made it much harder to claim
21:33
Speaker 3: deductions against.
21:35
Speaker 2: Losses of that nature.
21:37
Speaker 3: Okay, some tax attorneys may disagree, but the majority would
21:42
Speaker 3: say that's going to be a tough position to take
21:45
Speaker 3: as of the TCGA so.
21:48
Speaker 2: JA, which was you know, now four years ago.
21:52
Speaker 3: But it just made it harder to take like bankruptcy
21:56
Speaker 3: scenarios like that as losses on your tax return. Now,
22:00
Speaker 3: again that's a great scenario. If you have millions of
22:04
Speaker 3: dollars loss, I would talk to a professional to.
22:06
Speaker 1: Say, yeah, for sure, Yeah, well they should be Yeah, there's.
22:10
Speaker 3: It's harder, generally speaking, who reliably be able to claim
22:14
Speaker 3: that as losses on your tax return.
22:17
Speaker 1: Let's talk about red flags because I look at trading
22:21
Speaker 1: activity right now hitting yearly lows. This is obviously what
22:26
Speaker 1: we've seen around the holiday. Everything kind of lulls in.
22:29
Speaker 1: People are either taking tax loss harvest, they're looking for
22:32
Speaker 1: first week moves in January. When you look at the
22:36
Speaker 1: IRS both on these extreme market movements, you could even
22:41
Speaker 1: go back to the October tenth event. Are there any
22:45
Speaker 1: things that are red flags that might trigger audits within
22:50
Speaker 1: some of the things you're doing in crypto?
22:52
Speaker 2: Yeah.
22:53
Speaker 3: The big one now that's changing this year is if
22:56
Speaker 3: the tech If the IRS receives a ten nine nine
22:59
Speaker 3: DS from a US exchange like Kraken and they don't
23:03
Speaker 3: see that same income reflected on your tax or train report,
23:08
Speaker 3: that is immediately going to get flagged and you will
23:11
Speaker 3: probably automatically receive a letter from the IRS saying, hey,
23:15
Speaker 3: explain this discrepancy to us.
23:17
Speaker 2: That's the biggest one.
23:18
Speaker 3: So yeah, again, this year, all of your centralized exchanges
23:22
Speaker 3: will be reporting how much crypto you sold. They'll tell
23:25
Speaker 3: the irs exactly all those transactions.
23:29
Speaker 1: What about because there's a lot of people think also,
23:32
Speaker 1: and I anticipate we're going to see these kinds of
23:34
Speaker 1: emergency market situations where we see emergency moves being made,
23:40
Speaker 1: and this could be withdrawing from cold storage, doing coin
23:44
Speaker 1: to coin swaps, especially on exchanges, and there's several wallets
23:47
Speaker 1: out there that you have that swapping mechanism you want
23:50
Speaker 1: to swap, you know, Eat for avax, whatever it might be.
23:54
Speaker 1: How and what records are critical right now? When you're
23:58
Speaker 1: in those kinds of things, should you practice to make
24:02
Speaker 1: sure you're doing.
24:03
Speaker 3: Yeah, the nice thing about anything that's happening on chain
24:07
Speaker 3: is the reporting is cleaner because it exists ically on chain,
24:14
Speaker 3: and so you do always kind of have those records.
24:17
Speaker 2: You don't risk, Oh the exchange blew up, so they lost.
24:20
Speaker 3: All my transaction data on the blockchain exactly, and so
24:23
Speaker 3: tools like coin ledger can always go and read in
24:26
Speaker 3: and accurately see if we just have a wallet address
24:29
Speaker 3: exactly the transaction data associate with that address. And so
24:33
Speaker 3: that's nice is that you don't need to be sitting
24:35
Speaker 3: there typing in all your trades and excel or whatever
24:38
Speaker 3: to keep track of something that's happening on a self
24:40
Speaker 3: custodied type of wallet because tools like coin Ledger, all
24:44
Speaker 3: we need is your public address and we can read
24:47
Speaker 3: in all those conactions.
24:49
Speaker 1: I love it.
24:49
Speaker 2: I love it.
24:50
Speaker 1: I will say it's it's definitely one of the more
24:52
Speaker 1: elegant tools out there. So if you guys haven't you know,
24:55
Speaker 1: tried coin leedgric go, is it free to sign up and.
24:57
Speaker 2: Start, really free to use.
24:59
Speaker 3: The only time that you'll hit our pay wall as
25:01
Speaker 3: if you actually want to download our times. Yeah, but
25:03
Speaker 3: you can use it all, use our portfolio tracker completely free.
25:07
Speaker 2: Yeah.
25:07
Speaker 1: I think a lot of those text softwares are like that,
25:10
Speaker 1: So kudos to you for doing that. Trust It gets
25:14
Speaker 1: people in the framework of what they're up against, you know,
25:17
Speaker 1: because in many cases people just don't know, you know.
25:20
Speaker 1: That's a lot of the big problems that you find
25:22
Speaker 1: you look at. You mentioned this earlier, the real and
25:25
Speaker 1: it's kind of a rebuilding strategy that I think a
25:28
Speaker 1: lot of people are in right now trying to rebuild
25:30
Speaker 1: their portfolio into twenty twenty six. They've got realized losses
25:34
Speaker 1: right now from twenty twenty five, how should they think?
25:38
Speaker 1: And they don't have gains, so they have that three
25:40
Speaker 1: thousand dollars you know limit that they're setting on, which
25:43
Speaker 1: is not near the losses they probably took. What are
25:46
Speaker 1: some things they should look at going forward, because I
25:50
Speaker 1: know you said this is an infinite you know well
25:52
Speaker 1: of losses that you can go against. Is that you
25:55
Speaker 1: just keep record of all those losses and next time
25:58
Speaker 1: you have a capital gain.
26:00
Speaker 3: Yeah, exactly, you'll have a carry forward loss. So that's
26:03
Speaker 3: just the biggest thing is keep your tax return, should
26:06
Speaker 3: report that carry forward loss this year, and don't forget
26:10
Speaker 3: about it because a lot of people forget that they have.
26:13
Speaker 2: I don't know, forty seven thousand dollars worth of carry
26:15
Speaker 2: forward loss.
26:16
Speaker 3: So when you do eventually sell your bitcoin to do
26:20
Speaker 3: whatever it is in your life that you need to
26:21
Speaker 3: do or whatever, that carry forward loss can essentially take
26:25
Speaker 3: your tax build to like zero in the future.
26:27
Speaker 2: The recommendation is.
26:29
Speaker 3: Just key records of that carry forward loss and know
26:32
Speaker 3: the amount of carry forward loss you have, because then in.
26:35
Speaker 1: Future is that unlimited?
26:37
Speaker 2: Yeah, yep, you can carry.
26:38
Speaker 1: As far if it took me ten years. Yep, you
26:41
Speaker 1: could use it. Wow, that's pretty pretty crazy. I just
26:44
Speaker 1: wonder if the IRS is going to be you know,
26:46
Speaker 1: hitting that. Are there any things that you're hearing from
26:49
Speaker 1: the IRS right now that make you more concern for
26:53
Speaker 1: a crypto investor in twenty twenty six.
26:56
Speaker 3: Well, I'm always concerned with them because they're just fairly
26:59
Speaker 3: clear on what's actually happened at the ground level. The
27:05
Speaker 3: biggest thing I'm concerned about is ten nine nine DA,
27:08
Speaker 3: just because it's going to cause a lot of confusion
27:10
Speaker 3: in the market. So the biggest concern is that, let's
27:14
Speaker 3: say someone receives a ten ninety nine DA and they
27:17
Speaker 3: don't watch this episode, and they're not super tax savvy,
27:20
Speaker 3: as most people are not, they may just be like, oh,
27:23
Speaker 3: I guess I made one hundred thousand dollars or whatever
27:25
Speaker 3: it is. Take it to a small scale, maybe I
27:27
Speaker 3: made three thousand, and they just report that. And that's
27:31
Speaker 3: the big the biggest risk and kind of or unfortunate realities.
27:35
Speaker 3: A lot of people this year are likely going to
27:37
Speaker 3: wind up overpaying on their taxes, oh, just because they
27:41
Speaker 3: don't understand that.
27:42
Speaker 1: I should change the title of this to don't overpay
27:45
Speaker 1: exactly your taxes.
27:47
Speaker 3: There will be a lot of people and even tax
27:49
Speaker 3: professionals who are not cryptosavvy. They're used to getting a
27:53
Speaker 3: clean ten ninety nine B and that's what they'll kind
27:56
Speaker 3: of think this is, and they might also wind up
27:59
Speaker 3: over report their clients.
28:00
Speaker 1: Tax Wow paying taxes. Can you imagine that in the
28:05
Speaker 1: crypto world. All right, let's talk about business for a seconds,
28:08
Speaker 1: because there's more and more businesses that are holding crypto
28:11
Speaker 1: on balance sheets. All right, You've got even company doing
28:16
Speaker 1: employee compensation in crypto. I know a lot of contractors
28:18
Speaker 1: being paid in crypto. They're doing mining and staking. You know,
28:23
Speaker 1: are how does that apply? I know you're not a
28:26
Speaker 1: tax attorney and you're not giving tax advice here, but
28:29
Speaker 1: I'm just gonna I want your insights to because you've
28:32
Speaker 1: probably worked with a lot of businesses that are doing this.
28:34
Speaker 1: What are things they need to be aware of?
28:37
Speaker 3: Yeah, coin Leundard does not serve businesses, but I am aware.
28:42
Speaker 3: So the biggest thing, if you're an employee getting paid
28:45
Speaker 3: out in crypto, you're recognizing ordinary income and at the
28:49
Speaker 3: fair market value at the time that you receive it,
28:52
Speaker 3: and so whatever the asset you're getting compensated for your
28:56
Speaker 3: services is at the time you get paid Outlet's says
28:59
Speaker 3: every two weeks whatever it's worth at that two week mark,
29:02
Speaker 3: once you get control over it, that's the income income
29:07
Speaker 3: up and so you'd total all of that up for
29:09
Speaker 3: the year and you report that on your tax return.
29:12
Speaker 2: Yeah. Have you seen the keeping type records?
29:15
Speaker 3: Yeah?
29:15
Speaker 1: Have you seen a platform out there that does a
29:18
Speaker 1: good job for this for employers to pay in crypto,
29:21
Speaker 1: whether it's stable coin or bitcoin or ether or whatever.
29:25
Speaker 3: Yeah, there's a bunch of crypto accounting software, so that's
29:28
Speaker 3: like bitwave and others that will help businesses keep track
29:32
Speaker 3: of all of that and employees as well on the
29:35
Speaker 3: accounting side. So if you're operating a business and you have,
29:37
Speaker 3: as you mentioned, crypto on your balance sheet, crypto expenses
29:40
Speaker 3: paying people in crypto, that's where those solutions kind of
29:43
Speaker 3: fit in the market, different than the tax software companies.
29:46
Speaker 1: Yeah, I've been lobbying Gusto to do this because they're
29:49
Speaker 1: one of the biggest, you know, payroll companies out there.
29:52
Speaker 1: We use them, and you know, it's a problem once
29:54
Speaker 1: you get into even though they have done international pay
29:57
Speaker 1: so we have you know, contractors all over the world
29:59
Speaker 1: that with us on research and things of that nature.
30:02
Speaker 1: So in the business world is getting so much more global,
30:06
Speaker 1: and crypto is such an easy way to do this,
30:10
Speaker 1: you know, versus all these banks, and you know what
30:13
Speaker 1: you're dealing with with a Swiss franc versus a US
30:16
Speaker 1: dollar and a lira, et cetera. I mean it's a
30:19
Speaker 1: problem with just being able to keep that.
30:21
Speaker 2: Yeah, it is.
30:22
Speaker 3: Especially with the continued growth of stable coins, You're seeing
30:25
Speaker 3: it more and more.
30:26
Speaker 1: Yeah, for sure. You look at I think the opportunity
30:30
Speaker 1: for DeFi is going to be pretty big in twenty
30:32
Speaker 1: twenty six, We're going to see a whole slew of
30:36
Speaker 1: new services starting to hit. Are you guys offering any
30:38
Speaker 1: kind of product or service that's specifically geared toward DeFi.
30:43
Speaker 2: Yeah, we do.
30:44
Speaker 3: We employ a large blockchain engineering team who every single
30:49
Speaker 3: day their job is to integrate more and more DeFi
30:53
Speaker 3: protocols into coin Ledger. Now, the way coin Ledger is
30:57
Speaker 3: architected is we can pull in any transaction that happens
31:02
Speaker 3: on chain, but then we have this classification layer that
31:05
Speaker 3: we're constantly adding to. So depending on new smart contracts
31:09
Speaker 3: that become popular. Those raw debits and credits that coin
31:13
Speaker 3: Lunder will always pull in will start to match the
31:16
Speaker 3: shape of the real transaction. And so we do have
31:18
Speaker 3: a very specific product. It's not a product in of itself,
31:21
Speaker 3: it's just it works. When you plug your on coin lager,
31:25
Speaker 3: our kind of accounting logic will actually properly classify all
31:29
Speaker 3: those debits and credits into this was a trade, this
31:32
Speaker 3: was a multi asset swap, this was staking income, and
31:36
Speaker 3: you won't have to do anything.
31:37
Speaker 1: All that's automatically classified. Very nice, Very nice. Are you
31:40
Speaker 1: familiar with the section four seventy five which is the
31:43
Speaker 1: marked to market election?
31:45
Speaker 2: Do you know about it? Not deeply, only at very
31:48
Speaker 2: service level.
31:49
Speaker 1: It is one that I'm exploring and we you know,
31:52
Speaker 1: we hold this webinar and I should say webinar seminar
31:55
Speaker 1: here in South Florida. It's mostly high networth individuals. And
31:58
Speaker 1: we had two taxi turns neys that came and presented
32:01
Speaker 1: last week in the last one we did and they
32:04
Speaker 1: brought this up and I was like, this is new.
32:07
Speaker 1: I had never heard of this. But it's basically a
32:10
Speaker 1: mark to market election if you are a high networth
32:13
Speaker 1: individual and there's all sorts of tax breaks within this,
32:17
Speaker 1: especially if you have a significant losses. So if somebody
32:20
Speaker 1: was buying bitcoin early at ninety thousand or maybe one
32:23
Speaker 1: hundred and twenty five thousand on this year's high and
32:26
Speaker 1: is now sitting at eighty eight grand on this that's
32:29
Speaker 1: a significant loss. I would suggest that you guys go
32:32
Speaker 1: out check with your tax attorneys, ask them about that
32:35
Speaker 1: section four seventy five, the mark to market election, and
32:38
Speaker 1: have them explain it to you. It might fit for you.
32:40
Speaker 1: I don't know if it'll work in your scenario, but
32:42
Speaker 1: I know there's a lot of people that listen to
32:44
Speaker 1: the show that are kind of in that space.
32:47
Speaker 2: At a high level.
32:47
Speaker 3: I know that there is a lot of requirements you
32:50
Speaker 3: have to look more like a professional headghem on style
32:54
Speaker 3: investor and how you're investing to be able to classify
32:58
Speaker 3: yourself as that. But it is a good one to
33:01
Speaker 3: follow up on, yeah, in terms of what are the
33:03
Speaker 3: options for people?
33:06
Speaker 1: All right, so you got a lot of lessons learned
33:08
Speaker 1: in twenty twenty five, you think about twenty twenty six,
33:12
Speaker 1: lots of opportunity in the market right now, what would
33:15
Speaker 1: you give our audience in terms of tips for next year,
33:19
Speaker 1: just for tax planning ahead.
33:23
Speaker 3: Yeah, So the big ones we did cover is make
33:25
Speaker 3: sure to keep tight record keeping. If you're not already
33:28
Speaker 3: set up with some type of record keeping software a
33:32
Speaker 3: coin ledger or whatever else, I would do that it's
33:34
Speaker 3: free to track everything and then be aware again of
33:38
Speaker 3: ten ninety nine DA and just how it works so
33:41
Speaker 3: that you don't wind up overpaying on your taxes, because
33:44
Speaker 3: that's the last thing you want to do.
33:45
Speaker 1: Yeah, I guess I have a couple of trailing questions.
33:49
Speaker 1: And we talked about this the last time you and
33:51
Speaker 1: I were on and that was the air drop. You know,
33:53
Speaker 1: chaos that happens Sometimes you get these random tokens that
33:57
Speaker 1: are coming from different programs, or you're getting yield off.
34:01
Speaker 1: I'm uniswaps getting ready to burn a whole bunch of
34:03
Speaker 1: UNI ended up probably paying a lot of UNISWAP holders.
34:06
Speaker 1: So how do you treat those? Yeah, because some of
34:10
Speaker 1: these are value.
34:12
Speaker 3: Yeah, that's the one to your point. Can be tricky
34:15
Speaker 3: part because when you receive an air drop and take
34:19
Speaker 3: control over it, that is ordinary income at the fair
34:22
Speaker 3: market value time you receive it. And what becomes problematic is,
34:28
Speaker 3: let's say I received ten UNI. And just let's say
34:30
Speaker 3: it was worth ten thousand dollars. If I hold that
34:33
Speaker 3: and then six months later I sell it when it's
34:36
Speaker 3: worth two thousand, I have ordinary income of ten thousand
34:41
Speaker 3: and a capital loss of eight thousand. And again, as
34:45
Speaker 3: we mentioned, your losses can only deduct up to three
34:48
Speaker 3: thousand dollars of ordinary income. And so that's where people
34:53
Speaker 3: can get into trouble because if you received an air
34:56
Speaker 3: drop and it goes down a ton of value, you
34:59
Speaker 3: still o taxes on the fair market value. At the time,
35:02
Speaker 3: Horrible sieved it an unfortunate reality, and there's been a
35:08
Speaker 3: lot of people who have tried to get that changed unsuccessfully.
35:12
Speaker 3: I do believe there's a chance that does change in
35:14
Speaker 3: the future, though, I.
35:15
Speaker 1: Mean, some of these NFTs have gone from fifty k
35:18
Speaker 1: they're worth five hundred bucks right now. I mean, yeah're
35:21
Speaker 1: absolutely decimated. So to your point, if you don't have
35:25
Speaker 1: the gains to carry that over, I mean, that's basically
35:28
Speaker 1: just a hole in your portfolio and a hole in
35:31
Speaker 1: your balance sheet for sure. So this has been a
35:35
Speaker 1: good one.
35:35
Speaker 2: David. Thank you.
35:36
Speaker 1: First of all, thanks for coming in on New Year's Eve.
35:39
Speaker 1: This is our last podcast of the year. I think
35:41
Speaker 1: it's one hopefully you guys will like. By the way,
35:43
Speaker 1: we are going to drop a few more formats this year,
35:47
Speaker 1: so let us know in the comments. Do you like
35:49
Speaker 1: these more conversational Do you like more of the news roundups?
35:53
Speaker 1: Give us some insights of what you guys are watching
35:56
Speaker 1: listening to out there. David, thanks again for coming in.
35:59
Speaker 2: We appreciate it. Yeah, thank you.
36:01
Speaker 1: All right, we'll see you guys next time right here
36:02
Speaker 1: on the p B Show. Take care,