Bitcoin and CryptoCurrency Taxes Q&A | Ivan On Tech
Welcome to this cryptocurrency video posted by Ivan on Tech. Ivan has a Q&A with a tax specialist. Bitcoin and CryptoCurrency Taxes Q&A video to help people not get rekt!
Laura is working in the US but it's still very important for all of you to watch because things might be similar in your country. So because we will be speaking about things that might be the same in your country its good to listen. But still it's better to contact a professional to help with you crypto taxes.
Laura let's start simple let's start with when do you have to pay taxes for crypto and then we'll get into the other topics and then we'll get into the Q&A.
When do you have to pay taxes for crypto
There's basically three main ways and then this year as of about a month and a half ago there actually are a few more ways as well so if you send your crypto, so you use it to buy goods or services pay someone with it just basically you use it to buy something that's considered a taxable event. Also if you sell it to USD that's also considered a taxable event or if you trade one crypto for another that's also a taxable event and taxable event specifically mean that you either have a gain or a loss that you have to realize. It could be big it could be small but there is something that needs to be reported from that activity.
How to treat masternode rewards, mining rewards, forks, air drops, and so forth. As of now we now have guidance on that and so if you receive a fork or an airdrop mining staking or master another award these are all considered in custom equal to whatever the value is of the coin on the day that you receive it. It is still income and it can either be self-employment income or just other income kind of depending on your involvement in the activity but yeah that's kind of the main ones that if you do any of those you need to file taxes.
Mistakes people have encountered with crypto taxes
Mistakes people have encountered maybe something that people don't think about or they have some kind of misconception of.
What are people not understanding about this because to me it seems very simple but at the same time I know that the result of misconception and also a bunch of different information going around about taxes. So what kind of misconceptions or mistakes do you usually encounter?
I think a lot of people think that just recently these have become the tax rules and before that nothing was taxable. People think it was only taxable if you pulled out Fiat but this has actually been the tax law since 2014. If you in the past have not reported your gains and losses and you've only just started to realize that by having the reporting it now and everything it may trigger questions especially if you're taking long term gains.
If you haven't been doing taxes, now is the time to kind of get on top of it. The IRS has been sending out lots of audit notices recently. If you haven't got one of those yet that's good for you but they said they're gonna start another wave next year. It's good to get ahead of it and maybe they'll be able to waive penalties and interest now that you're kind of going ahead of it instead of them coming to you.
Because you have corrected yourself so you have to file an amended return and then when you file the amended return what I would recommend is not paying penalties and interest. When you pay that payment you will have to pay the tax from the past years but I recommend not paying the penalties and interest and at that point and then the IRS will likely send you a letter saying okay we received your amended return you now owe us $500 in penalties and interest. At that point you can send back a letter and request a one-time abatement of penalties and interest. Every taxpayer is actually entitled to a one-time abatement especially in this case where the guidance wasn't super clear.
You could just state in your letter
"you know I didn't realize that I had to do this in the past now I'm getting all caught up to date and you know everything going forward will be compliant and I will report correctly so can I please have a one-time abatement of penalties and interest due to the unclear tax law in the past"
Tax loss harvesting in crypto
A question I got from the chat before we started streaming and also a question that we discussed as well is about tax loss harvesting. So what is tax loss harvesting and is it a good or a bad idea to do?
Tax loss harvesting is a really good idea especially right now. This is the perfect time of year to do it before the year closes. This is something you can only do within the same calendar year so as soon as January first hits your option to harvest any losses is completely gone. If you want to harvest losses it can be good to do, but let me kind of explain what it is.
Tax loss harvesting is taking a look at the gains that you've accumulated so over the course of the calendar year. Let's say you've realized ten thousand dollars of gains from trading, selling, or spending your crypto. But then you also are holding some more crypto and some of it is being held at a loss. So let's say you're holding coins at a fifteen thousand dollar unrealized loss. If it's unrealized you can't actually take this loss until you realize it. Unrealized means it's just sitting there and it's gone down in value but you haven't done anything with it just you're still holding it. If you can sell it, trade it, or spend it before the end of the year that's called harvesting your losses and if you still want to hold that coin you can go back in and re-buy it because as of right now the wash sale rules do not apply to crypto.
Wash sale rules in crypto
For those who aren't familiar with wash sale rules I know this is kind of a lot of different tax language but wash sale rules apply to stocks and security saying that if you sell something at a loss you have to wait 30 days to re-buy it in order to take that loss. But with crypto since it's not considered a stock or a security by the IRS, crypto is considered property.
A major loss for example of fifteen thousand was bought at the wrong time I can go sell that and re-buy it so that I'm still be holding it in my portfolio. With this I end up actually so I had ten thousand dollar gain before I now I'll have a fifteen thousand dollar loss. So I completely offset my gains with my losses and I'm not gonna have to pay any taxes and on top of that I can get an additional three thousand dollar deduction because that's the maximum capital gains deduction you can take this year. With capital gains deduction you can use that three thousand dollars to offset your other income or receive a refund so it really can benefit you. If you hadn't done that and you were just holding your crypto at a loss you would have had to pay tax on that ten thousand dollars of gains which you know could be anywhere from 10 to 40 to 50 percent depending on your tax bracket in your state.
Crypto Tax Documentation
I want to ask you about the documentation you need to have so for example I know some people in Sweden are in trouble with the tax authorities. Tax authorities don't accept documentation that they get from certain crypto companies or from some exchanges like from local Bitcoin...
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