Bitcoin Halving: What Are The Tax Considerations?

Learn the tax considerations resulting from Bitcoin halving and who they are affecting most. Get significant crypto tax lessons traders learned from 2017.

It’s that time again—a planned Bitcoin event reducing Bitcoin miner’s rewards in half, hence the name, Bitcoin halving.  

We’ve been here twice before, but for something so predictable in many ways, Bitcoin halving hasn’t gotten any less exhilarating for the crypto community.

This is the third halving with dozens more to come. 

There’s no cryptocurrency mystery surrounding the Bitcoin halvings themselves – they happen automatically with no action required by anyone. 

The forecasts have been all over the board. The predictions outlandish, and the disagreements have ranged from the rise and fall of Bitcoin (and everything in between). 

There has been a collection of arguments for why this time is different from doubts in two data points being able to establish a pattern to various structural or fundamental underpinnings that have changed over time. 

But we at Donnelly Tax Law are not in the business of predictions; we are in the business of taxes.

So, we left the predictions to the relative experts and have had them explain what the point of Bitcoin Halving is and how it works.  

“The 2020 halving, the third in the network’s history, means the mining reward has now been reduced from 12.5 bitcoin per block to 6.25 units. It went down to 25 from 50 bitcoin per block in November 2012 and further decreased to 12.5 units in July 2016.” – Coindesk.com

What's the point of Bitcoin halving?

Bitcoin halving

The point of Bitcoin halving as shared by the experts at Bloomberg.com:

  • Bitcoin’s issuance is limited in several ways. 
  • For one thing, according to its founding protocol, just 21 million Bitcoin will ever be in circulation. That’s appealing to many who fear that fiat money – the kind issued by governments – can lose its value to inflation if too much is printed. 
  • Supporters argue that Bitcoin, by contrast, will be guaranteed to increase. 
  • Halving also prevents inflation by acting to periodically slow the pace at which Bitcoins are created so as not to outstrip demand.
  • To other observers, halvings can serve as a hurry-up-and-buy signal by suggesting that a bump in price could accompany slower growth.
    [
    1]

How does the Bitcoin halving affect price?

Bitcoin halving cryptocurrency

How Bitcoin halving affects price as shared by the experts at Forbes.com:

  • Michael Dubrovsky, cofounder of the mining company PoWx sheds light on how the Bitcoin halving impacts price, “The theory is that there will be less Bitcoin available to buy if miners have less to sell.” So, from a supply-demand perspective:
  • If Bitcoin supply decreases and the demand for Bitcoin stays the same, then the price of Bitcoin will increase.
  • If Bitcoin supply decreases and the demand for Bitcoin increases (ie. Institutional investors, millennials, or boomers, etc. looking to capitalize on the hype increases), then the price of Bitcoin will see a significant increase in price.
    [2]

What are the tax considerations of the Bitcoin halving?

backup withholding

The tax considerations of Bitcoin halving as shared by our expert Crypto Tax Fixer, Clinton Donnelly at DonnellyTaxLaw.com:

Income tax is only assessed on the gains and income of cryptos. So the halving effects different crypto owners differently.

Who does the Bitcoin halving affect?

The halving affects the miners the most. It changes the profitability of their company.

To continue mining, most miners have to buy new mining equipment. However, the tax laws favor writing off the cost of new equipment in the year you purchase it, which can create significant short-term tax benefits.

If you are a miner, your income goes down, so it makes it harder to have a profitable business. But an unprofitable business can offset income in other areas of your life.

Mining companies may be eligible for some emergency economic stimulus because of the costs of operating a mining farm.

Hodlrs are not affected by the halving. It promises a rapid rise in the price of Bitcoin and other coins. But there is no tax consequence until you trade one coin for another coin or for fiat.

Active crypto traders are not affected by the halving other than the hope of having more substantial profits in the future.

What tax lessons have we already learned?

One crucial lesson active traders learned from 2017 is that it's imperative to save money to pay the taxes on net gains as you make crypto to crypto trades where a profit is made.

One way to do that is by using a crypto gain calculation service like:

These tools can help you track your cumulative gains and losses as you come into the end of the year. This tracking will help you plan on how much to save for taxes.

If the market does go up significantly this year, using these tools can help you with tax harvesting techniques.

Harvesting techniques are merely cashing out the losing coins to offset your tax gains during the year. 

To get crypto tax help for your particular situation, schedule an appointment with Donnelly Tax Law.  

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How The IRS Will Use Anti-Money Laundering Forms To Come After Crypto – Part 2 of Charlie Shrem Interview Video (Transcribed)

Crypto tax expert Clinton Donnelly and crypto influencer Charlie Shrem discuss how the IRS uses anti-money laundering forms to come after crypto traders.

In part 2 of our multi-transcription series with Charlie Shrem, Clinton and Charlie discuss the accuracy of a crypto tax return and how the IRS will use anti-money laundering forms to come after crypto traders.  

Read my e-book, the Basics of Crypto Taxes, to learn how cryptos need to be reported on anti-money laundering forms.

Can your crypto tax return ever be 100% perfect and accurate?

[Charlie Shrem]: Is that physically possible?  Can your crypto tax return ever be 100% perfect and accurate?

[Clinton Donnelly]: A tax return is not like your high school math test where you’re trying to get a 100.

[Charlie Shrem]: Oh man, this is a great sound bite. That’s the first time I’ve ever heard anyone say that.

[Clinton Donnelly]: You just want to be close.

[Charlie Shrem]: Fuck, brilliant.

[Clinton Donnelly]: You want to be close.

[Charlie Shrem]: Honest, right?

[Clinton Donnelly]: Yeah.

"You want just to be honest, have integrity. That's what I've always tried to do with my tax returns."

- Charlie Shrem, Untold Stories Tweet

[Clinton Donnelly]: Hey look, the IRS auditors are under quotas. 

I had a former IRS auditor work for me, and he said they have monthly quotas that they have to go after. 

They have penalties that help them hit it, but if you’re pretty close, and they know they’re going to lose, they don’t want to waste time on you. They want to move on to the next bigger guy.

“Most people think the IRS is going to audit a tax return by going through that long list of transactions to see if you calculated it right, you know FIFO, LIFO, and all that. That's not at all how they're going to do it."

[Charlie Shrem]: What are they looking for? 

Are they looking for someone who intentionally lied about a holding and then had an exchange account overseas and didn’t report it?

Or are they looking for someone who reported $60,000 in income instead of reporting $100,000 by mistake, and just not going back and fixing it?

Can an auditor read the tax return and say, okay, maybe this guy or girl made a mistake?

Or do they read a tax return and say no, this guy was intentionally dishonest?

[Clinton Donnelly]: The IRS is in the business of compliance. In what we’ve seen in their public statements, they want to go after the criminals okay. They have those blockchain analysis tools because then they can go after who was doing the dealings.

But if you’re just an honest guy, a regular crypto trader who’s a large fish and didn’t know how to do your tax return correctly or your preparer didn’t know, the approach on that is different.  

It comes down to how the IRS can prosecute a law case. 

If they look at your crypto reporting and how you made these trades, there are a whole bunch of  “taxpayer’s rights” procedures in the law, and they have to do appeals and send letters and stuff.

READ MORE: How Are Cryptos Reported On Anti-Money Laundering Forms?

"If they use the anti-money laundering laws, they use a different section of the code. It's not a part of the tax code even though the IRS manages it; it is Title 18 of the Bank Secrecy Act. And from that, they can immediately go to prosecution and penalties. So, it's much easier. That's the way they're going to come after you."

[Charlie Shrem]: What people don’t realize is when I got arrested in 2014, I got arrested by an IRS special agent. 

And, we went on to being on pretty good terms over the years. 

I try to have respect for people that are just doing their job.

So, with the IRS anti-money laundering, there’s a huge overlap there, and so what you’re saying is important. 

What type of things are they looking for? 

For my crime, there was a money transmission, and there was a company that I owned that wasn’t tax-related.

READ MORE: Why Crypto Traders Are Low-Hanging Fruit For The IRS

What are some crypto tax-related things that the IRS is looking for when it comes to anti-money laundering?

crypto tax return

[Charlie Shrem]: Because it seems like that’s something people should look out for at the top.

[Clinton Donnelly]: The first one is the major anti-money laundering law, called the Bank Secrecy Act 1990. 

It created an organization called the Financial Crimes Enforcement Network, lovingly known as FinCEN, and they’re the ones that develop the regulations that all banks, brokerage houses, money lending, money service businesses have to follow.

“And it's the FinCEN violations that got you, Charlie. They applied FinCEN regulations against cryptocurrencies, and it's surprising. I'm shocked how much denial traders have, and even tax preparers have that crypto people have to report anti-money laundering. Some of them don't even think it's cash or that it's a financial asset.”

But for an individual, you have to report FinCEN form 114, which is most commonly endearingly called the FBAR, the Financial Bank Account Report, and you have to report.

"Every crypto trader has to file an FBAR report and file a form 8938, which is an overlapping tax money laundering form. It came from the FATCA law of 2010. These are required unless you're a small fish; if you're a small fish, there's a filing threshold and you don't have to file."

[Charlie Shrem]: What if you never held accounts overseas or even exchange accounts? 

Is this something you have to deal with? 

And what if the exchange has a U.S entity like Binance? And, they are based in Hong Kong, but they have Binance America. Isn’t Binance America required to do the reporting, not you?

[Clinton Donnelly]: None of the U.S exchanges are under full regulation of the SEC, all right. So if they were, then that reporting would be done by them, but since they’re not, you still have to report. 

[Charlie Shrem]: I feel like that would be better. Wouldn’t that be better? If you have a brokerage account, it’s your brokerage that’s required to do all the tax reporting for you. Isn’t that so much easier, or would you rather it be, as an accountant, that traders themselves are reporting it on their own?

[Clinton Donnelly]: Absolutely what you’re saying is right. And that’s where I think we’re headed for a couple of different reasons. 

There’s been international regulation, and the U.S said they’re doing it.

They’re going to force all US crypto exchanges to comply with the all banking and brokerage regulations.  

In the future, you’ll get a 1099B just like you do from a brokerage statement listing all your trades and what you bought it for fully certified; it would be straightforward for your crypto tax returns. 

We’re not there yet.

[Charlie Shrem]: I feel like that would be such a pivotal point for Bitcoin and crypto. If I could tell a friend of mine who wants my Bitcoin, yeah, you go on this exchange, and then don’t worry about it.  

You see all the IRS headlines; you see the government taking people down. 

If you can go to an exchange and know that exchange is going to be sending you that form at the end of the year, I feel like a lot of people would trade more comfortably that way. 

Not everyone wants to be their own bank; not everyone is an anti-statist or whatever. I don’t know what you call the term, but some people want that comfort. And I understand that, and I do get it, especially non-tech people.

[Clinton Donnelly]: We’re definitely headed there. There’s an exchange called Robinhood, where it’s totally insulated. You cannot do transfers in and out of Robinhood, you have to bring cash-in, and only cash-out, any coin stays in Robinhood. As a result, they know what you bought it for, they know what you sold it for, and they could generate a 1099-B

They’re very close to doing that. I think the Uphold exchange is getting close to doing that. 

But as long as we have that you can move coins from this exchange to that exchange, to the other exchange, then the exchanges don’t know the buy and sell prices, and they cannot give you that type of report. It’s a term called covered securities.

[Charlie Shrem]: It’s a good point. If they don’t have that content, then how are they supposed to issue a report?

[Clinton Donnelly]: But I think, trend-wise, what we’re going to see as we have more and more people getting into crypto, is that trading becomes more mainstream. They’re going to demand this. They’re not going to accept anything with the chaos that we have now. 

And as a result, Fidelity is going to have a crypto exchange, Merrill Lynch is going to have a crypto exchange, and it’s going to be all-inclusive.  

How can I say this? It’s all-inclusive like Robinhood is; you cannot trade between exchanges. 

That’s where we’re headed. And in that case, because then those will be SEC-regulated exchanges, it could be very attractive.  

It has to be very mainstream. There’s probably some downsides on that too, but I think from a tax point of view, it’d be very attractive.

[Charlie Shrem]: You know when you don’t understand something, you become hostile to it automatically when you’re constantly trying to understand something over time, and you can’t. That’s why there’s a lot of hostilities still towards crypto because simply people don’t understand it. 

And why I’m telling you this is, if you do a Google search and you type Bitcoin taxes or crypto taxes or IRS Bitcoin, it’s all negative. It’s negative; it’s fear, it’s uncertainty, it’s doubt, it’s scary, there’s no clarity. 

And I think that’s one of the reasons that a lot of people just simply say, “Okay, if I don’t get it and it’s too complicated, how is the IRS supposed to get it and not be too complicated?”

That’s the wrong mentality to have, right? 

Just because something is scary, if you’re in our space, if you’re in our industry, you have to pay attention to your taxes.

READ MORE: Why Your Crypto Taxes Need An Enrolled Agent Specializing in Crypto

What CPAs will handle anti-money laundering forms for crypto traders?

crypto tax

“The problem is that a lot of CPAs that I've gone to, and other people went to, they either say I don't want to touch this, or they make you more scared.”

- Charlie Shrem, Untold Stories Tweet

Do you know what a lot of CPAs are doing now? They’re saying hire our tax firm to do your tax return if it is not a normal return. There’s a word for it, where they have to go deep dive into it. 

What’s the term I’m looking for? Is it forensics? 

We have to do forensics on this now, so it’s more expensive. So now charging more money because someone’s in crypto.

Protect yourself from the IRS with a CryptoTaxAudit membership.

Watch The Full Interview Video

Subscribe below to not miss part 3 of this transcription series, coming soon. 

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5 Reasons Why Your Best Crypto Tax Firm Choice Is Donnelly Tax Law

Learn why Donnelly Tax Law is the best crypto tax firm to file your crypto tax return amid all the crypto changes in 2019.

Spring is in the air, and it’s at that time of year for finding a top crypto tax firm to protect you from all the crypto tax changes and events that have made 2020 a milestone year for crypto.

Crypto traders have been digesting a lot of regulation changes put in place by the IRS in 2019, not to mention the emotional and economic distress of the global pandemic brought on this year by the COVID virus.

Few have been thinking about where to find the best crypto tax firm to report their crypto gains or losses this year.

Let us make this one decision a lot easier for you so you can save your time and energy for healing and safety this tax season.

5 reasons why you should choose Donnelly Tax Law as your crypto tax firm.

enrolled agent crypto

1. Clinton Donnelly, founder of Donnelly Tax Law, is an enrolled agent…

Clinton Donnelly is an Enrolled Agent with a law degree specializing in the international laws of financial regulation, including taxation. He specialized in income tax preparation and problem-solving. He has a focus on the unique anti-money laundering and tax reporting needs of crypto traders and Americans abroad.

2. As an E-file provider authorized by the IRS our crypto tax firm is committed to the IRS standards of data protection and integrity with client data. We use a secure online portal to exchange files in an encrypted manner for your protection. 

3. Enrolled agents are America’s Tax Experts. Enrolled Agents are the only federally licensed tax professionals who also have unlimited rights to represent taxpayers before the IRS. This certification also means that we uphold the professional guidelines set by the IRS.  

4. By belonging to the National Association of Enrolled Agents, we are held to a high level of continuing education annually and keeping up with the highest level of professionalism in our field.

5. We’re members of the American Society of Tax Problem Solvers, the premier organization of tax professionals specializing in solving tax problems.

And if those five reasons aren’t convincing enough…

We have been named among the top crypto tax firms.

We are proud to have been named among the Top Crypto Account & Tax Firms You Should Know About in 2020, By Blox.

It’s important to know that we never turn away a client, no matter how complicated their tax situation.  

We specialize in complex crypto tax compliance.

At Donnelly Tax Law, everything we do is about developing innovative defenses to protect our client’s wealth.

Our crypto tax firm creates innovative defenses with our team of crypto data specialists by using the most comprehensive tax preparation software and knowing the latest tax and crypto laws.

We create bulletproof crypto tax returns, legal affidavits for tax amnesty claims, and represent our clients when their profits are in question with tax authorities.

Make an appointment today at Donnelly Tax Law.

We come highly recommended by the “OG” (original gangster) of crypto - Charlie Shrem

If you are worried about receiving an audit letter from the IRS, we can protect you as an annual member of CryptoTaxAudit, a program highly recommended by the “OG” (original gangster) of crytpo, Charlie Shrem.

Our CryptoTaxAudit members always receive the priority of our defense against non-members. 

This membership means that our crypto tax firm will defend you against the IRS, but you must begin membership before receiving the audit letter.  

If you have already received your letter, we have several solutions at all your price point needs. 

Find out more about our crypto tax services here: https://donnellytaxlaw.com/crypto-tax-services/

Or schedule a consultation today.

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Why Your Crypto Taxes Need An Enrolled Agent Specializing in Crypto

An enrolled agent who specializes in crypto is just what you need for your crypto taxes. Learn more about enrolled agents and how they can help you.

You’ve recently become one of the crypto statistics.

One of over 10,000 crypto taxpayers the IRS suspected did not report their crypto taxes accurately and, therefore, would receive an IRS letter.

Now it’s happened, and you are about to learn why you need an enrolled agent to help you out of this mess.

You’ve received one of those dreaded crypto education letters direct from the IRS.

You worried this day would come since the IRS began cracking down on crypto traders back in 2019.

And nobody is blaming you for being fearful. You made some mistakes.  

You had significant gains on your income back in 2017.

And you likely had crypto assets worth over a million dollars in 2017 and 2018.  

But the truth is you never really understood how to report your crypto taxes correctly. Nobody did.

There were gaps, and essential documents were missing from what you eventually filed in the end. 

You didn’t know to file form 8824 (like-kind exchange) or form 8949 to report your crypto-to-crypto trades. 

You never filed any anti-money laundering forms FBAR or 8938.  

Your tax professional or CPA never even told you about these forms.

READ MORE: Why Crypto Traders Are Low-Hanging Fruit For The IRS and How Are Cryptos Reported On Anti-Money Laundering Forms

So, why didn’t your tax professional or CPA know about reporting these forms?

tax planning

They’ve been a trusted advisor for years. 

They’ve always been superb at meeting all of your tax needs.  

But you may have outgrown them with your needs as a crypto trader.

Have they not been able to guide you or answer your crypto questions even though they have been by your side for many years as your trusted advisor? 

New relationships must be born to guide you, but your trusted advisors can still have the advisory opinion on your business that you’ve cherished so much.  

Just beware of leaving your crypto in their hands and having more mistakes made.  

It’s time that your new needs are met.

So, where should you turn now that you have the IRS letter in your hand?

IRS letter

Surely you’ll continue to get blank stares when you ask what to do from here with your audit letter.  

You may have even mounted up a bundle of debt trying to find someone that wouldn’t say no to helping you with your crypto tax audit.

That is, until today since you have now had the good fortune of finding this post.

We never turn a client away, not even when everyone else has.

There is absolutely no need for fear when others have said no.   

We can get you back into compliance.    

When everyone else has turned you down, including your trusted Tax Advisor, you can always turn to Donnelly Tax Law.   

Our expert team of enrolled agents specializes in crypto tax audit protection.

We never turn any client away, no matter how complicated their situation is, and we will know how to defend you against the IRS best.

Why can an enrolled agent, specializing in crypto, best protect me from the IRS?

Back in 1884, Congress decided to create the enrolled agent profession to regulate representation for citizens dealing with the US Treasury Department.   

The IRS defines an enrolled agent as a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns or through experience as a former IRS employee. Footnote 1

Enrolled agent is the highest credential awarded by the IRS and gives them unique powers when it comes to the process of tax. Footnote 1

The National Association of Enrolled Agents explains that enrolled agents are the only federally-licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the IRS.

Footnote 2

Enrolled agents’ expertise in the continually changing field of taxation enables them to represent taxpayers at all administrative levels within the IRS effectively. Footnote 2

The NAEA goes on to explain that the IRS Restructuring and Reform Act of 1998 provides federally-authorized practitioners (those bound by the Department of Treasury’s Circular 230 regulations) with a limited client privilege. This privilege allows confidentiality between the taxpayer and the enrolled agent under certain conditions. The privilege applies to situations in which the taxpayer is being represented in cases involving audits and collection matters. Footnote 2

Because of the expertise necessary to become an enrolled agent and the requirements to maintain the license, there are only about 53,700 practicing enrolled agents. Footnote 2

Only enrolled agents are required to demonstrate to the IRS their competence in all areas of taxation, representation, and ethics before they are awarded unlimited representation rights to represent taxpayers before the IRS. Unlike attorneys and CPAs, who are state-licensed and who may or may not choose to specialize in taxes, all enrolled agents specialize in taxation.

Footnote 2

enrolled agent

@CryptoTaxFixer

Donnelly Tax Law’s enrolled agents can defend you against your IRS Crypto Audit Letter.

crypto tax

In 1913, when the income tax was passed, the job of the enrolled agent included claims for monetary relief for citizens whose taxes had become inequitable. As income tax, estate tax, gift, and other sources of tax collections became more complex, the role of the Enrolled Agent evolved. They took on additional duties, including the preparation of the many tax forms. Footnote 3

Enrolled agents also had to learn about taxpayer advocacy. This additional skill involved negotiating with the Internal Revenue Service on behalf of their clients. Footnote 3

So, if you have received an IRS crypto education letter, don’t panic. Donnelly Tax Law can help. We are trained in negotiating with the Internal Revenue Service on behalf of our clients.

In the event of receiving an IRS letter, an enrolled agent can also represent you before the IRS. Enrolled agents have virtually unlimited practice rights, meaning there are no restrictions on the variety of taxpayers they are allowed to serve or the tax matters they can manage.

If you’re looking for representation outside the traditional tax filing season or you need representation before the IRS for an audit, appeals, or collections matter, then an enrolled agent is your best bet. Footnote 3

We never turn away a client, no matter how complicated their situation.  

We specialize in crypto tax compliance.

At Donnelly Tax Law, everything we do is about developing innovative defenses to protect our client’s wealth.

We create innovative defenses with our team of crypto data specialists, by using the most comprehensive tax preparation software, and knowing the latest tax and crypto laws.

We create bulletproof crypto tax returns, legal affidavits for tax amnesty claims, and represent our clients when their profits are in question with tax authorities.

Make an appointment today at Donnelly Tax Law.

If you have not yet received your IRS audit letter, then boy do we have a membership for you. Members of CryptoTaxAudit.com defense will receive year-round defense against the IRS if you receive one of these letters while enrolled in our membership.

Our members always receive the priority of our defense against non-members. 

This membership means that we will defend you against the IRS, but you must begin membership before receiving the audit letter.  

If you have already received your letter, we have several solutions at all your price point needs.

READ MORE: Why Crypto Traders Are Low-Hanging Fruit For The IRS 

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Footnotes

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Why Crypto Traders Are Low Hanging Fruit for the IRS

Crypto traders need to take the first preventative step against receiving a crypto IRS letter by understanding what they are up against.

Like many crypto traders, you may have experienced a great deal of uncertainty about the future.

And, that uncertainty may have caused you to fast-track your earned wealth with some speculative crypto trading.

You may have also thought that by not reporting all your gains, you could keep that extra money in your pocket to stay wealthier. 

Does any of that sound familiar? 

If it does, you are not alone.  

According to industry surveys, an estimated 46% of crypto traders didn’t even report their cryptos on their tax returns.  

They believe the IRS won’t find them.

And it’s unfortunate, but they are wrong.

This post and my e-book Why Crypto Traders Are the Low-Hanging Fruit for the IRS have both been written for crypto traders to help them realize that hiding is not a successful strategy.

Tell me why crypto traders are the low-hanging fruit for the IRS.

Crypto Traders can avoid IRS problems

Let’s begin by dissecting this.

The IRS views crypto traders as the easiest goal for them to target.  

Why is that?

crypto trader
[Noun]
A trader, who is exchanging one cryptocurrency for another, buying and selling coins, and exchanging fiat money into crypto.

low-hanging fruit
[Noun] 
The most easily achieved of a set of tasks, measures, goals, etc.

Because many crypto traders have hidden their income and a snowball effect began from there.  

It’s hard getting back into compliance once you have hidden income.

You risk continuing to expose those errors each time you file with the IRS.  

But I’m here to tell you. It’s not entirely your fault and that there are solutions.

Maybe you were afraid and didn’t know how to file, or perhaps you didn’t know where to turn for help?

Bookmark my e-book Why Crypto Traders Are Low-Hanging Fruit for the IRS to learn more and protect yourself.

IRS Crypto Crackdown On Crypto Traders

tax case

On July 26, 2019, the IRS began sending out educational letters to 10,000 taxpayers they suspected to be crypto traders who hadn’t reported cryptos properly. (1)

The letter recipients with whom I’ve spoken shared some interesting characteristics. 

All of them had significant gains in 2017 with crypto assets worth over $1,000,000 in late 2017/early 2018. 

They all had used one or more foreign exchanges. 

One of the traders had only started purchasing cryptos in 2017 and not earlier. 

None of them had filed a form 8824 (like-kind exchange) or form 8949 to report their crypto-to-crypto trades. 

If they filed a 8949, it was only for crypto-to-fiat trades. 

None of the traders had filed anti-money laundering forms FBAR or 8938.

If this sounds like you and you have immediate questions or concerns, please don’t worry. 

We can help. Make an appointment at Donnelly Tax Law today to schedule a 30-minute consultation.

Or you can review our affordable crypto tax tools.

Most significantly, members of our CryptoTaxAudit will receive year-round defense against the IRS if you receive one of these audit letters while our member of our program.   

This membership means that we defend you in an examination of your IRS crypto activity.  

READ MORE: Avoiding the IRS Crackdown

How do crypto traders stay in virtual currency compliance if they get a Crypto IRS letter?

The first thing is, don’t panic.

But, urgent action should be taken.

I anticipated these letters in my e-book, Why Crypto Traders are Low-Hanging Fruit for the IRS.  

Read this book to help you diagnose your situation.  

There’s time to fix your exposure and avoid penalties, but you must be decisive.  

You can also still get tax amnesty, or if you want to do it yourself, we have the Crypto Tax Fixer Package.

Otherwise, schedule a call on my calendar as soon as possible. We will not turn you away.  

I have a team of people ready to fix your situation, but we need to start soon.

Start protecting yourself with

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Video Interview & Transcription: Virtual Currency Owners Have to Confess to the IRS with Charlie Shrem

We delve into the major new tax requirement that affects virtual currency owners. Learn more from part 1 of this interview video with Charlie Shrem.

Crypto Tax Expert, Clinton Donnelly, and Crypto Influencer, Charlie Shrem discuss crypto taxes, the IRS, and why every virtual currency owner has to confess “Yes” or “No” to the IRS.  

In crypto, there are big fish, and there are small fish, find out the difference between the two.

Interview Video with Charlie Shrem (Transcribed): Part 1, Virtual Currency Owners Have to Confess to the IRS

telecommuting

Become a member of CryptoTaxAudit today to protect you from an IRS audit letter. 

In part 1 of our multi-transcription series with Charlie Shrem, Clinton and Charlie discuss why starting in 2020, every owner of virtual currency has to confess “Yes or No” under oath.

[Charlie Shrem] What’s going on starting in 2020 is that every taxpayer has to confess under oath yes or no if they’ve dealt with cryptocurrencies in the past year? 

We have a lot of useful nuggets of information. Honestly, after doing this show, I feel a lot better, and you should, too, when you listen to this show. 

A great return defends you, and a good crypto tax return is one that is not easy to prepare but a guy like Clinton Donnelly can.  When you finish this show you’ll learn how to do it on your own or you’ll be confident enough to give him a call.

He’s got a very, very good attitude about taxes, he wants to work with you, and he wants everyone to do it the right way. But at the same time realizing that you shouldn’t pay the IRS one more cent than you legally are obligated to.

If you’re buying, selling, or holding crypto, you are low-hanging fruit for the IRS. For many years I’ve been waiting for a good solution where I can be proactive in my taxes but more importantly to sleep at night.

Before the IRS picks you for an examination, subscribe to our newest sponsor CryptoTaxAudit

CryptoTaxAudit is an audit protection service designed for the needs of the crypto trader. That’s you, me, and everyone else.

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The statute of limitations on a crypto tax return is six years. 

CryptoTaxAudit covers you regardless of what year the IRS examines. Best of all, you can sleep well, knowing that the best crypto tax gurus are ready to defend you.

CryptoTaxAudit is a service of Donnelly Tax Law. 

While other services are reactive, CryptoTaxAudit is proactive and gives you tools like their crypto tax health check so you can reduce your chances of getting an IRS letter in the first place. 

No one likes that certified letter from the IRS. Donnelly Tax Law specializes in complex crypto tax return preparation. No situation is too complex for them. So check them out at cryptotaxaudit.com and listen, guys, start defending yourself today.

This is the most important episode you’re going to listen to on this show. 

Tax season is coming up.

And why that’s important is because:

"If you're in crypto, if you buy, sell, trade hold, do anything Bitcoin or crypto-related, this episode is extremely important."

- Charlie Shrem, Untold Stories Tweet

We’re going to talk about all the subjects and conversations you’ve been purposely ignoring.

Or that you’ve been dreading with anxiety.

Now, our guest today, Clinton Donnelly.

The New Tax Requirements for Virtual Currency

cryptos reported on anti-money laundering forms

"Clinton, thank you so much for coming on the show. You are the best crypto tax return preparer in the business. You have the cojones to do what every other CPA doesn't. The CPAs that I've talked to have turned me down."

- Charlie Shrem, Untold Stories Tweet

Thank you for coming on the show, and thank you for doing what you’re doing.

[Clinton Donnelly] I am so glad to be here, Charlie.

"I'm passionate about helping people because there's just such a lack of understanding on how to do a great crypto tax return, and it makes every crypto trader vulnerable. So I'm glad we can be talking and letting people know."

[Charlie Shrem] There’s a lot of ambiguity; there’s a lot of mystery, complication when it comes to taxes not related to crypto. So we have a lot to cover, let’s get right into it. 

The first thing on everyone’s mind that they’re thinking about right now is starting in April 2020, as of April 15th, when they have to report taxes. You have to say “Yes or No,” and it’s under oath. 

And that’s such a small question. Yet, my mother-in-law may have to say “yes” because I’ve opened up a wallet for her and given her $100 worth of Bitcoin, right? 

And now she’s going to be added to a list of all crypto holders in the country? How is that legal? How is that constitutionally legal?

[Clinton Donnelly] Well, yes, the IRS has put a question into schedule one, which is a part of Form 1040, where you list your income. 

It’s a question that’s at the top; you can’t miss it. It says, “Did you receive, sell, send, exchange or otherwise acquire any financial interest in virtual currencies during the year?” 

Virtual currencies are their word for cryptos. And this is a sweeping thing, and it’s yes or no.

[Charlie Shrem] Airline miles too.

[Clinton Donnelly] Yeah, that’s true. So there are two things you can do here. 

I think it’s a violation of our first amendment, fifth amendment, and eighth amendment rights, and I’ve written a letter. I sent it to the IRS protesting this, but hey, it’s not going to take the question off.

Once you’ve checked yes, you go on a list of the people who are crypto traders, and guess what? If you were a crypto trader in 2019, the odds are pretty high you were a trader in 2018 and 2017. So now you’ve put yourself on the list that they can go back and look at how you reported in 2017.

Did you report crypto gains? 

Did you report anti-money laundering forms in 2018 and 2017? 

This is about their compliance at the IRS now, and it is getting very sophisticated. 

It’s all data mining driven, artificial intelligence, and it’s just so easy to shake down who the big traders are and go after them. 

People think the IRS is going to go after them by calculating all these capital gains and their transactions. No, no, they take a whole different approach at coming after people, and it’s so crucial for people to protect themselves.

READ MORE: How are Cryptos Reported on Anti-Money Laundering Forms?

In crypto, there are big fish and there are small fish, so let's separate the two.

IRS assessments

[Charlie Shrem] Maybe you want to talk about that first, and then we can hear about what they do?

[Clinton Donnelly] That’s true. Everybody should consider if in the IRS’ eyes you are a small, medium, or large fish? 

A small fish would be if the most you ever had in the markets were say, no more than like $20,000 -$30,000. 

You’re small, and those people are hyper conscientious, and they want to do the right thing. But fixing your tax return is so minor, it’s going to generate such little income to the IRS, that they’re not going to go after you.

"We have a service for small fish called cryptotaxaudit.com. You can get the protection that someone's going to defend you if you ever get that letter from the IRS about how you reported cryptos."

What’s a Big Fish When It Comes to Virtual Currency?

enrolled agent crypto

But if you’re a large fish, you have much more exposure.

"The IRS wants to go after big fish because the rewards are much bigger."

"You're a big fish if you had $100,000 or more at peak at any time in the market and mainly if you are trading on foreign exchanges, which most people did."

It’s easy for the IRS to identify you and come after you. 

They sent out letters to large fish in August of this past year, basically a letter saying, did you report your cryptos? 

They called it an educational letter. I have maybe 15 clients who received these letters, and it’s amazing they all have million-dollar or more holdings.

The IRS knew who the big fish were. A lot of these people, along with one of my clients, did all their trading overseas, so the IRS knew they were big fish overseas.

"I wrote a book about this, Why Crypto Traders Are Low-Hanging Fruit For The IRS, and it gets into a lot of details. But if you're a large fish, it's vital when checking this new question that you have a bulletproof tax return."

You need to be rock solid because the IRS has a long time to come after you. 

Your statute of limitations, if you filed it correctly, is six years. But likely, 95% of people haven’t filed it correctly, and therefore, their statute of limitations is now open forever. 

Protect yourself from the IRS with a CryptoTaxAudit membership.

READ MORE: Introducing Crypto Tax Tools by CryptoTaxAudit

Watch the Video for the Full Interview

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COVID-19 Alert: The Silver Linings This Tax Season

Learn about the COVID-19 precautions we’re taking and some of the latest news and tips for enduring the pandemic and saving you money on your taxes.

Right now, times are uncertain with the spread of COVID-19.  

Unpredictable emotions are running high, with massive changes forced on your everyday routines due to the Coronavirus. 

But the human race is resilient and we are in this together as a global community.  

In times like this, when things seem rather bleak, there is always a silver lining to be found.  

We look forward to doing our part at Donnelly Tax Law to help you see those good things this tax season.

We know this year will be like no other and the last thing we want to add to your worry is interruptions to completing your taxes.  

So, while we all learn to deal with this new COVID-19 pandemic together, we want to let you know you can continue to count on your tax family here at Donnelly Tax Law to get you through this trying time.

Practices That Make Us Strong During COVID-19

COVID-19 world map

We are putting your safety above all else in the upcoming weeks.

As the COVID-19 pandemic forces changes in our everyday routines, our priority at Donnelly Tax Law is to ensure the safety of our staff and to solve the tax concerns of our customers.

Donnelly Tax Law was built intentionally for a robust operation that is resilient to virus threats, both medical and electronic.

Our work will not be slowed down by the pandemic. Even in normal times, we automatically file extensions for our clients so that the April 15th deadline is extended until October 15th. Read further for more information about the filing and payment deadlines being extended by the IRS. 

Donnelly Tax Law is a team of remote workers and therefore we are not exposed to the health risks of a typical shared physical office. We will continue to work on your behalf, even with regional lockdowns.

Precautions We Are Taking During COVID-19

COVID-19 face masks

We are implementing quarantine procedures for deliveries we receive. This safety measure will add a couple of days to the paper return filing procedure, but it will keep us working happily and healthily on your returns.

  • All of our systems and data are cloud-based on highly-secure systems. 
  • All data is encrypted. 
  • All of our systems require two-factor authentication for extra security. 

We are in communication with our vendors to make sure all critical systems remain available. We do not expect any unplanned outages.

COVID-19 Resources and How to Save A Lot Of Money With Your Tax Returns

We are still working hard for you! Donnelly Tax Law has a staff of eight people. We have always worked remotely, so the pandemic has not disturbed our business processes.

We also have a staff backup strategy, so that if any team member, including myself, needs to take sick leave, we have a backup so the work can continue.

Save 20% By Paying Your Invoice With Bitcoin

Bitcoin

From now until April 15th, we are offering a 20% discount to current and future clients for any portion of your invoice that you pay or prepay with Bitcoin. 

Our team is standing by to get you more details on how to take advantage of that special pricing.  

Don’t have any Bitcoin? Start an account at Coinbase or Kraken.

Due To COVID-19, IRS Delay Filing And Paying By Three Months

anti-money laundering

To help cope with the COVID-19 Coronavirus, the IRS has delayed payments and filing by three months. July 15th is now the new due date for filing individual tax returns and making the final payment on 2019 taxes. There is no penalty for extra interest because of the three-month delay. We already automatically extend the filing deadline to October 15th for all of our customers. 

The good news is that now there is extra time to pay!

If you are a client and your tax payment is scheduled already for auto-debit and you want to delay it, you will need to cancel the debit following the instructions in this link.

READ MORE: Tax Filing Deadline Extended To July 15th Due To COVID-19

Making The Most Of The COVID-19 Isolation

don't give up sign

If you are part of our tax community, you can take advantage of the extra free time to finish gathering all your tax documents and crypto records. 

Once completed, upload them to your secure ShareFile folders and let our client manager know so we can proceed with preparing your taxes.  

You can also use this time to learn more about US expat taxes and cryptocurrency taxes with the various ebooks I’ve written about each topic. Visit our online ebook store and discover additional crypto tax tools at our site CryptoTaxAudit.com.  

Learn about other important COVID-19 news from our blog. If you haven’t already, you can subscribe to our newsletter so you get notified of our latest posts.

READ MORE: Coronavirus Relief Package Signed Into Law – More To Come

Clinton Donnelly In The News

One last note, we are excited to report that I’ve been staying at the top of crypto news this tax season. I’ve taken part in multiple interviews with several national and international crypto podcasters, such as crypto pioneer Charlie Shrem, Brad Kimes, Ivan on Tech and more.

WATCH NOW: Crypto Tax Amnesty? CPA Clinton Donnelly Shares Critical Insights on How to Talk to the IRS and File