Crypto Taxes with @TheCryptoCPA of @Cointracker

if you get earnings and make trades in the cell. But this year, they are being directly reported. So you will hear from the IRS very quickly if you don't report your crypto stuff and they get a 1099 DA from Coinbase or whatever. And they're like, okay, where is this on the return? So that's really important to know. And then Sean, usually you go through a number of things that you should keep in mind, like five rules of things to keep in mind when you make crypto transactions and what is taxable and what to pay attention to. Yeah, so let's just give you guys like a quick crypto tax one-on-one. So these are the five transactions that are taxable by the IRS. So if you went to any of these transactions, that means you will most likely have to file additional form. So the IRS, when you file your taxes by April 15th. So let's go through these transactions. So number one is cashing out. Let's say, you know, you purchase a Bitcoin for $50,000 and sold it for $80,000. You had to pay capital gains taxes on the difference of $30,000. So that's like the very first taxable transaction which is especially very clear. I don't think there's any controversy there. The second taxable transaction is when you go from one coin to another. So let's say you are swapping Ethereum to Bitcoin or Bitcoin to something else. Those transactions can also trigger taxable gains even though you're not realizing any cash. So this is where a lot of people kind of get things wrong and you guys sometimes in a go from one coin to another and then that coin to another coin and keep breaking up gains that you had to pay taxes on in US dollars. But at the end of the year, you might not have cash to pay the taxes. So something to be careful here when you do swaps. The third one is like when you spend cryptocurrency. So let's say you're spending crypto to buy a computer or something like that. Or even like a cup of coffee, those little transactions could trigger taxable events as well. So something to keep an eye on. And the fourth taxable transaction is when you earn cryptocurrency. So you can earn crypto in many ways. You can earn crypto currencies through mining income, staking income, different type of yield. So even through employment, those type of events are taxable as under-income whenever you receive those tokens in your wallet or even exchange account. Then the last one is it's kind of like crypto specific thing. If you ever get a drop like new coins with a value that's considered a taxable event at the time you receive them, generally speaking. Or if you go if a blockchain goes to like a hard fork and you receive like a second coin because of the hard fork and that second coin has a value, that is also considered a taxable event. So hope that kind of gives you an idea. Basically if you went to any of those five situations in the last year or even the previous year, that means you have a tax filing obligation later to crypto taxes. Yeah, I find that really useful. Just kind of in general, if you've made money from crypto, you have to pay taxes on it is like my baseline rule. So if you, you know, you get, you don't think about aero drops or you don't think about other random stuff, but whatever it is, if you've made money from crypto, you will owe taxes on it. And I think the reason why I'm so passionate about this topic, it's like an anger based passion because in 2021, I had sold NFTs for Ethereum and I got the Ethereum and whatever, the price of Ethereum at that time was like $4,000 or whatever. And I was like, oh, sweet, I'm doing well. And my assumption was that if you, to pay taxes on crypto, you just like whenever you sell it, then you pay taxes on your sold value, but that is not the case. You pay taxes on the value of the cryptocurrency that you got at the time you got it. So you pay taxes like if Ethereum is $4,300, a token and you get a Ethereum token, then now you owe taxes on that $4,300 or $4,000 or $4,000 or whatever I said that may or may not have been ridiculous. And so for me, at the end of the year, Ethereum had gone down to like $1,200 and I got an accountant and did taxes and he was like, okay, you owe this extraordinary amount of cash for your taxes. I'm like, I don't have that because the, I don't have cash, I just have Ethereum and Ethereum has gone way down and it's like, okay, so I just owed a whole bunch of money, more money than I had. And so I had to sell Ethereum at a loss the next year, which means all I got was a tax credit going forward, but the cash I had to pay the taxes was like very low. So I tell this long story because I don't want people to get into the same situation as me and being ignorant of how crypto taxes work because it can really screw you over when you're trying to do the right thing. If you're not doing it. Just to add to that point, Billy, I think I agree with you, like I guess like a simple way to kind of remember about crypto taxes is that if you made money, just know that you got, you have something to do when the tax bonding time comes. Now that said, I know in the past couple of years, not many people actually made money. They probably lost money. Even in those situations, filing your crypto taxes makes sense because if you made like a loss, those losses you can use it to offset crypto gains. If you don't have any crypto gains, those crypto losses can offset your gains coming from stocks or even regular income in some cases as well. So don't just think that you have to report something related to crypto only if you make money. Even if you lost money, it's beneficial for you to report those losses because those losses can offset other gain items and potentially increase your refund amount as well. So if you're not reporting losses on your taxes, you're just leaving some benefits on the table. Yeah, and you have to carry forward those losses. So if you don't claim all of them in one year, you can do what $3,000 going forward per year or if you have gains in future years. So it's not all lost. That's actually related to a question that I got on my earlier post. Someone asked, should I sell and take my losses because I have no gains to offset them or should I just hold to zero? What would you say to that? Yeah, I mean, I think it also kind of depends on what kind of investment is should you want to make and then the seconder is the tax outcome. Maybe let's take an example, like a big example, such as people to follow. Let's say you got a Bitcoin at $100,000 or on its peak. Now it's worth $10,000 and if you were to sell it, you would have $30,000 worth of capital loss. So assuming like you don't have any type of capital gain in the 2025 year, out of that $30,000 worth of loss, you can only claim $3,000 worth of loss because that's a rule. And in the remaining $27,000, you can carry it forward to future years. So in the future years, if you have gains coming from stock so crypto, you can offset those gains by those carried forward losses. So that's just like one scenario. Now another scenario, okay, same facts, part of a thousand Bitcoin, you sold it for $70,000. Now you have a $30,000 worth of capital loss. Let's say like in the same year, you have $40,000 worth of capital gains coming from, let's say like Nvidia or something like that. Now because you sold your crypto at a loss and generate that $30,000 worth of losses, you can use that $30,000 to offset the $40,000 gain gains coming from Nvidia. And so you will end up paying taxes on the $10,000 worth of gains. So the point that I'm currently making here is that if you really want to sell something, there's benefits either in the current year or in the future years if you want to carry forward losses. Yeah. As soon as you get any gains in future years. Correct. As soon as you get you have any gains. So even if you don't have any gains, let's say like, all right, you're completely done with crypto again, going back to my same examples. So you just completely sold your entire portfolio. Now you have $30,000 worth of losses. You don't have any capital gains because you don't own stocks or anything. So now every future year, you can offset your regularly income by $3,000 every year. So it's gonna take a while for you to use up your entire $30,000 worth of losses. But I also feel like if you're in crypto, you most likely have stocks on the capital assets. And when those assets make money, you can use those losses to kind of offset them. Yeah, my friend's dad held Intel stock for, I think it was over a million dollars of losses and then he ended up selling it because he needed the money. And I remember talking to him once and he was just like, I'm just gonna live for 180 years or whatever so I can get that $3,000 a year. So it's not taxes aren't the fairest thing at times but it's just good to know how they work. So you can take as much advantage as you can because otherwise they'll take advantage of you. Yeah, the other like a minor point to make here is that that $3,000 threshold has not been updated for like decades. So maybe the $3,000 loss of you, maybe you used to be a big deal in 1990's money but in today's world $3,000 worth of loss. Like I said, if you have like, if you $100,000 worth of losses or you have like a million dollars, it's gonna take like hundreds of years to do that. So I think there are some conversations about like increasing that threshold. That would be great. So yeah, we'll see. Yeah, that would be really nice. So it looks like we have a request. I have a request for someone who has a question. I have a request for anyone coming up. Please do not shill. If you come up to shill something, I will knock you off pretty immediately. So don't do that. But if you have a crypto question or about taxes, feel free to make a request and we can get that answered for you. So let's bring Nate up. Nate, do you have a question about crypto taxes? Hi, I had a question and so one was, I think I had I had it down in the comments, which was how can someone kind of like explain how to properly deal with like unbases and UDA forms that they have a lot of unknown cost basis that was the first question. Great question. The other one, it was with what you were saying, which is like, let's say I met losses, right? Let's say person A, let's say they have another job and then on the side they trade crypto. So let's say for example, he made, let's say he made 50,000 from his job at W2 job and then on the side where he trades crypto, he met losses of, let's just say it maybe say 10,000 in not same year. So I want to ask is it, let's say he owes, let's say he owes like 3000 on his salary on his income, W2 job. So does it mean that his $10,000 loss can offset the 3000 in terms of like does it apply as a credit or like does it kind of become like a deductible or is it now that he made 10,000 loss? That means that he can offset that loss with 3000, do you in taxes? Thank you. Great questions. Yeah, go ahead. Yeah, two great questions. Yeah. Okay, so let me answer the question one. So the reason why Coinbase and other exchanges have a lot of unknown cost phases is because in crypto like a lot of people transfer coins from one exchange to another or sell custody, from custody to Coinbase and sell it on Coinbase. In those cases Coinbase does not know the cost phases in simple terms how much you paid for that coin because it was transferred in, it was purchased outside of the exchange. Now, if you go to the Coinbase tax center, CoinTracker, which is the company I work for have integrated very closely with them. So if you click, if you kind of go to the tax flow, you can set up a CoinTracker account. Then the CoinTracker account essentially kind of traces your historical cost phases and it gives that information to the Coinbase and to you as well. So that way you can find your missing cost phases. So that's like.