How to Account for Crypto on your 2019 Taxes - Interview with the Founder of CryptoTrader.Tax

in #dtubelast month (edited)


The words crypto and taxes can be a combination that causes people a lot of stress – or at least a big headache. Because regulation around cryptocurrency and US tax law has been a little murky – it’s left people confused on how to properly account for their crypto activity. In this interview with we chat all about this topic to hopefully clear things up for people.

David Kemmerer is the founder of CryptoTrader.Tax – which is basically a plug and play software for calculating your taxable events when it comes to crypto activity that happened on an exchange. Their software generates a report that you can automatically import into DIY tax software like Turbo Tax and Tax Act, but it can also be used by those who hire a tax accountant. Not all tax professionals are up to speed on the latest regulations with cryptocurrency, and so handing that report to your accountant can help you make sure that everything is filed correctly.

Whatever your views on taxation of crypto, I think it’s still an important topic to discuss and understand and I really hope that many of you find this interview to be helpful!

I’m a big fan of any project that can help increase crypto adoption and makes onboarding easier for the masses. Having a user-friendly software that can take the stress out of taxes is a great tool to get your average investor more interested in crypto.

If you have any other tax questions that we didn’t cover in this interview – I know the CryptoTrader.Tax team is super responsive on twitter and I’ve seen them answering tons of questions when people tweet them. You can find their twitter handle and other social links below:

🔗CryptoTrader.Tax Social Links
Website – CryptoTrader.Tax
Twitter – twitter.com/@CryptoTraderTax
David Twitter – twitter.com/@David_Kemmerer

XO, Lea

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Taxation is theft and if you pay taxes your agreeing to their thieving ways. Dont pay taxes on your Cryptocurrencies..... No where in our constitution says that we must pay taxes.... You can go to livefreenow.org and sign up and take the steps to stop paying taxes for ever. Join the fight for freedom....

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Hey Shoe! Good to see ya around. :) I completely agree that taxation is theft, but I don't think that choosing to pay taxes is a cowardly move either... more a move of survivalism and self preservation. If someone isn't at the point where they feel willing to get thrown in jail... then looking at taxes is just part of it for now. That's not to say that same person may be looking to relocate to another country or do something different in the future.

What's up girl, yeah I agree with you. I don't consider it cowardly but I wish that us, the crypto world users took it to them thru decentralized platforms etc and gained the masses. We could do it, I believe but its a big, long road to succeed in it.

Requirements:

I've heard that people who make less than $10K/year may not be attacked by the IRS if they fail to do their taxes. But I've not been able to confirm this.

What is Crypto?

I don't know if you've talked about how some people argue that crypto is not centralized fiat, technically speaking, that they are not tangible assets like gold, and that they are not the same as stock.

Taxing Crypto

But of course, governments do try to tax people for crypto. That is true. Governments also try to ban crypto.

The Fourth Amendment

In America, some people argue for the fourth amendment which deals with privacy, that government should not be required to know personal matters of individuals which may include money.

IRS vs 2nd Amendment

The irony is that the second amendment was with us during 1776, during the founding of our nation, and yet the IRS was not with us until over a century later.

In Canada, we had to go from ... alt coin to bitcoin to $USD to $CAD. All at a given moment in time. The only difficulty was finding the exchange rates. Other than that, it wasn't too bad.

Once we had the $$$'s figured out, then we had to determine what was income versus capital gains etc, etc.

ahh interesting. Yeah this interview was focused on US tax law - but it sounds like you guys have some regulations around crypto up north too. Governments always want their piece of the pie. lol

That was a great interview, sure opened up a lot more questions for me though. If you pay taxes on your steam as ordinary income, I wonder what happens when you sell it in 5 years do you get taxed again? It's great that you started this conversation I just hope we can continue it.

Yes. Suppose you gain possession of 20 STEEM each worth 20 cents at the time. The blockchain paid you $4 of taxable earned income. If you sell it five years later, say, at a price of $10 a piece, you get $200 and the price you acquired them at was $4, which makes a capital gain of $196. So you must pay earned income tax on the $4 and five years later capital gains tax on the $196.

Finland considers income earned in virtual currencies on online gaming or "mostly recreational" platforms to be taxable only when they are cashed out into fiat, goods or services or virtual currencies external to the platform. What this means is that users of platforms like Second Life or Roblox can earn virtual currencies internal to the platform without their earnings being taxable until they cash out.

A quote from the guidance:

There are numerous – mostly recreational – games and programs on the internet that use their own currencies (such as gold, gemstones or coins) and earnings from which do not count as lottery winnings. In this guidance, all online games and programs are referred to as games regardless of the actual nature of the program in question.

Many online games give players (users of the program) the chance to earn currency by their actions in the game. Some games also allow the game's internal currency to be converted to real money or virtual currency. Players can also earn by selling attributes that they have developed in the game, goods that they have purchased in the game or the game's internal currency to other players for official currency, virtual currency or other benefits of monetary value.

Pursuant to Section 110 of the Income Tax Act, income is deemed to have been earned during the tax year in which it has been withdrawn, deposited into the taxpayer's account or made available to the taxpayer otherwise. In this guidance, these kinds of games and any virtual currency associated with the games are considered one and the same. This is why any virtual income from games is only considered to have been earned pursuant to Section 110 of the Income Tax Act when the player cashes out from the game. Taxation on income cashed out from online games is triggered when the player converts the game's internal currency or other benefit associated with the game to external virtual currency, real money or other assets of monetary value. Income from online games is valued and taxed according to the fair value of the asset received in return for the game's internal currency when the player cashes out from the game.

https://www.vero.fi/en/detailed-guidance/guidance/48411/taxation-of-virtual-currencies/

Interesting to see how the regulations vary in different countries! Thanks for sharing.

Tax officials are lost when asked how Steem income should be taxed but I think it is perfectly reasonable that a social media/gaming/etc. platform such as Steem would be considered the kind of platform to fall under the above definition, which seems to be worded in such a way as to be quite broad. There are lots of players of MMOGS who earn a lot small rewards for actions in the games and if every such action should be accounted for that would be unreasonable, which is why that guidance says virtual income on such platforms is not taxable until cashed out.

One thing he said offline after we were talking is that even though technically it should be reported as taxable income - the IRS likely won't know about it unless it passes through an exchange. It's definitely still a bit of a landmine out there with figuring this stuff out and there of course ways around all of this - but if you wanted to be 100% above board then, yes, I believe you would report it as regular income and then would trigger another taxable event in the future if you sold for a different crypto or exchanged to fiat. Their tax team would be able to clarify that more though if you reached out to them!

Very reasonable