Learn about how to estimate your taxes with an excellent crypto tax tool called Accointing in this transcribed Crypto Tax Webinar. Presented by Clinton Donnelly and sponsored by Accointing.
In the full live webinar, we covered:
- How to deal with COVID 19: Paying Crypto Taxes On An Installment Plan
- The current on-going policies regarding crypto-taxation
- What are taxable events and how to handle them
- The sent IRS letters and the different implications for each of them
- The next steps in order to conduct your crypto tax submission
- Some opinions from a top Crypto CPA in the market and average estimate of how much you will be paying in taxes
- An idea on how to estimate your taxes with a crypto tax tool
In Part One, we discussed the tax guidance the IRS has created to report cryptocurrencies and breakdown what those IRS activities have been in the history with crypto.
We looked at what type of enforcement the IRS is doing and reviewed how they’re slowly increasing the implementation level in how they’re going after people. We also explored some IRS letters that they sent out.
In Part Two, we discussed how to report cryptocurrencies on your crypto tax return. We looked at the mechanics and tax aspects of that.
PART THREE: Crypto Tax Tool With A Crypto Tax Expert
In Part Three, we will discuss how to prepare a tax return and what sort of help you can get. We’re also going to discuss how to use Accointing, an excellent crypto tax tool.
Accointing is a beneficial tool, particularly for reconciliation, one of the biggest challenges when using a tool.
You can report internal transactions using the crypto tax tool Accointing. These are transactions within the actual platform.
You need to tell the platform that those transactions were transactions recognized as being equal and the movement from one point to another. Then you can classify transfers within Accointing.
The idea here is that you can state what should be classified as income, an airdrop, a margin fee, a margin loss, and so forth to classify them based on their depot.
What happens if I don’t disclose all my positions?
Now we’re on the slide about what happens if I don’t disclose all my positions. This slide is a bit of a misnomer.
You don’t disclose your positions to the IRS, only your transactions and the penalties listed here are really for criminal tax evasion.
What do you have to worry about if you didn’t report your crypto activities in 2017?
I mentioned that because many of the smallest traders that call me are super conscientious and want to report everything and be above board.
The IRS is going to focus on the most prominent players: large and middle-sized players.
What happens if the IRS identifies that you didn’t report some income in 2017, and then you reported some gains, and they hit you with penalties?
There could be an understatement of taxes, that’s a penalty, and a late payment because you didn’t pay this.
Those two penalties themselves would typically add 50% to whatever you owed.
If it were over $5,000 in taxes, you would be looking at another 50% more in terms of penalties and interest.
If they felt you had engaged in tax evasion, there is a civil tax evasion penalty of 75% of whatever taxes weren’t paid.
Generally, they’re only going to use that when they’re coming after someone who is pretty egregious.
The critical thing is you want to be clean because when you suddenly start reporting in 2020 that you made trades, and when you list the buy date as 2017, that is a logical jump for an auditor to ask, ‘why didn’t you report any cryptos in 2017 or 2018?’.
You bought some, and you probably traded some.
So it’s the dates that are going to force you to come clean on past filing issues. That should be a concern of yours. You can schedule a consultation with me and we can talk through the situation.
What method can I use for crypto tax calculation in the US?
This question is related to the words FIFO and LIFO (first-in-first-out) or (last-in-first-out).
These reporting methods determine which coin it is that you sold when you sell a coin.
We know the price when we sell a coin because that’s in the transaction records, but what was the price of that coin?
You may have had coins at five different price points, and which one was it that sold?
The one you choose determines how much gain or loss occurred on a particular transaction, and that affects your taxes.
The tax laws said, FIFO.
They currently refer to revenue section 1012 which says, you have to do FIFO.
However, the IRS in the most recent FAQ in October 2019 said, you can use any method you want.
You can choose the best reporting method after the coin has sold as long as you use what they called a specific identification approach, which is being able to show that all your coins are accounted for. You just can’t make it up. Accointing’s crypto tax tool does that.
Accointing allows you to use FIFO, LIFO, or any method that you’d like.
I recommend that people use whatever method generates the lowest taxes for you to pay that year. And you can change this method every single year. You might do LIFO one year FIFO another year, and then, maybe an optimized method a third year.
How do you get started with an excellent crypto tax tool?
You have to decide how much you’re going to do for yourself on your taxes and how much you want someone to help you.
Our company does full-service tax calculation, but you’re going to be paying a couple of thousands of dollars to do all that per year. Larger traders can afford that, but smaller traders have to do that in a bit more of a budget manner.
I recommend a crypto tax tool like Accointing to generate your crypto tax records. That’ll generate a form called form 8949, the IRS form where you list the buy and sell dates and the cost and sale prices. Everyone is on the list, meaning the gain for every transaction.
Accointing will generate that record, and they can create it in a TurboTax format.
If you use TurboTax, it can be automatically uploaded, and Accointing makes it very convenient.
Most of those software packages will lease with TurboTax, but Tax Act or H & R Block will be the largest one. They all have the tools to generate a tax return. However, they aren’t literate about cryptocurrency reporting.
You’ll find instructions on the Accointing web page, which tells you exactly how to load it into TurboTax. It’s straightforward and effortless to do with the instructions. You only have to upload it to the software. So that’d be one approach.
What if your tax life is complicated or you are using an accountant, but your accountant doesn't know cryptos?
Your accountant is not interested in learning cryptos, so it may fall on you to use a crypto tax tool like Accointing to generate the tax records that you then turn over to your accountant.
And your accountant will then know what to do with form 8949. He or she can plug it into the tax software.
Or you can go to a full-service firm that can do everything for you if doing your crypto calculations is too overwhelming.
How do you find the right crypto tax accountant?
The best thing is to ask your accountant, bluntly, “Do you do cryptocurrency tax returns?” Ask them, “How many have you done and do you calculate the capital gains, or do you expect me to do that?”
I had one client who, in 2018, had a CPA who said, “Yeah, I know how to do this.”
And that CPA was only learning how to do crypto returns.
My client gave this CPA her taxes and five months later she still didn’t have it done. She gave up on it. So, she took it to another CPA who said, “Yeah, yeah, yeah, I can do this”.
He prepared the entire tax return for her, but he didn’t sign it. And my client dug into it and found out that this guy had lost his CPA license.
So it was just a fake return that he had made.
My client met me, and we did her tax return after the others failed. We got the whole thing solved and saved her a fortune. She paid zero taxes that year.
You want to ask your tax preparer, how many crypto tax returns they’ve done. You don’t want them to learn on you.
You can tell your tax preparer that you’ll do the Accointing work yourself and bring it to them. Your tax preparer will say yes to that and know what to do with the Accointing results.
Suppose you cannot do the calculation yourself, and using Accointing is overwhelming for you. Then, you need to get a professional to help, which can be done on an hourly basis.
Or you can turn the entire work over for a higher amount and have someone do the whole thing.
That is how you get started and get a tax return prepared.
How much will it cost me to pay my crypto taxes?
The complexity of your trading environment will have a bearing on how much you pay when you use a tool like Accointing.
Some people like to dabble in everything and used a bit of everything. Say, they did shape shifting, margin trading, and futures. They also used Binance, Defi, and did all sorts of things.
The more complicated your environment was, the more complicated it can be to calculate your gains. So, you have to look at the crypto tax tool and see what their pricing is.
Power Tricks For Medium To Large Fish (Crypto Whales)
I have a handful of tricks for you.
Suppose you’re a medium and large fish.
Note: These tricks probably aren’t for smaller fish.
My big six tools would be for reporting your capital gains before 2018, when the law was changed. We could use a method called like-kind exchange for 2015, 2016, and particularly 2017. This is a way of not having to pay taxes on the crypto to crypto trades. That gain is passed along to the subsequent transactions.
Starting in 2018, you couldn’t do like-kind exchange anymore, but I’ve saved people millions in this area.
For tax harvesting, as we come into the end of the year, around October, November, you want to start thinking about how you are poised from a capital gains point of view.
Around October/November would be a great time if you have a lot of gains to do tax harvesting, this would be to take coins that are losers, and sell them for a loss and take that loss and it offsets your gain so that your taxes at the end of the year will be lower.
There are two methods of tax harvesting:
- One is just selling worthless coins.
- Another one is doing a wash where you take a coin, sell it to lock in the loss, and then the next day buy it right back because you still want to have a position for that coin. You have a long term expectation for it.
If you’re a large fish, the third idea is to move to Puerto Rico, but you genuinely have to move there. You can’t just visit. They offer a 0% capital gains tax on capital gains from cryptocurrencies.
There are a lot of complexities and a severe thing to do. You seriously have to move to Puerto Rico. You have to uproot your life, but if you’re a large fish, this might be a meaningful thing to do, to make a lot of money to reduce your taxes.
So what are we talking about here?
You’re going from 15% tax bracket down to a 0% tax bracket.
So if you had $100,000 in gains, you’re looking at $15,000 in taxes.
To save $15,000 and go to Puerto Rico, probably not the right move for you, but if you have millions, this would be something to consider.
If you have old returns between 2017 and 2018 and you need to fix them because you didn’t report anything, especially if you’re a medium and large fish. Then you would need to look at tax amnesty solutions to minimize your tax liability.
What is your anti-money laundering liability?
If you traded on foreign exchanges, you had over $10,000 in foreign exchanges, you become liable to report those on the two anti-money laundering forms, FBAR and form 8938.
You can bulletproof your tax return. Just go to my website.
We have lots of do-it-yourself tools like books and an increasing number of videos we’re starting to make available online on how you can calculate your taxes using TurboTax, and how to do your anti-money laundering form filings.
We have lots of great crypto tax tools.
Responding To IRS Communications
Donnelly Tax Law offers a crypto tax audit for an annual fee.
Suppose the IRS contacts you about your crypto activity on your tax return. For any tax return you have exposed, and if you get contacted by the IRS, we will provide you with an analysis. You’ll be getting your A-team in place to respond to that crypto tax return.
This audit assist is critical. You can go to CryptoTaxAudit.com to learn more about that.
Dealing With COVID-19 Installment Payments
A lot of people are concerned about paying taxes. They realize if they pay their taxes, it’s going to be a big tax bill, and they might not have the money. People are worried about that.
One of the things you have available to you is installment agreements from the IRS. People who owe a lot of money can set up an installment agreement and spread the payments out over seven years.
You can pay it month by month until your cryptos go up and start to make some money, and then pay off that tax debt in a lump sum. The IRS is excellent about lump sums. They’re remarkable about interest rates, but they do want you to pay them monthly.
If you’re concerned about that big tax bill and what you’re going to do about it, there are many ways to do it.
See the chart above that explains some things, and if you have concerns, contact us.
Utilizing A Good Crypto Tax Tool
I invite you to go to the Accointing.com website and try their crypto tax tool. Dabble with it. There are several free features you can use.
If you require professional advice, you can contact us.
We have clients all over the world doing crypto calculations for US clients.
You can schedule a consultation on our website.
We can talk about your particular situation, or if you need help preparing your tax return.
Thank you for your time, and I hope you have a great weekend.
If you have a more complex situation, you can talk to the people at Accointing on their chat web page.
You can also contact me on my web page DonnellyTaxLaw.com and schedule a consultation for a fee; we can go over whatever your particular situation is.
You can also visit our website for Do-it-Yourself resources for doing your taxes.