TAX DEADLINE: The IRS Finalizes The July 15 Deadline

The IRS will not consider auto-extending the tax deadline beyond July 15 this tax season, but options are still available.

Many have been calling it the never-ending tax season. 

The changing tax deadline, along with a variety of potential tax incentives resulting from the COVID-19 pandemic, remains at the point of conversation during this tax season.

Until now, it has been unclear whether this tax season’s deadline would change yet again to help US citizens cope with the financial setbacks brought about by the coronavirus this year.

Background On This Tax Deadline

tax deadline COVID-19

Due to economic downturns created by the coronavirus, the IRS and US Treasury officials changed the tax deadline from April 15 to July 15 back in March.  

Until last week, the further postponement of the US tax deadline has remained a topic of discussion.

On March 13, 2020, the President of the United States issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act in response to the ongoing Coronavirus Disease 2019 (COVID-19) pandemic (Emergency Declaration). The Emergency Declaration instructed the Secretary of the Treasury “to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency”.

On March 18, 2020, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) issued Notice 2020-17 providing relief under section 7508A(a), which postponed the due date for certain Federal income tax payments from April 15, 2020, until July 15, 2020. 

For an affected taxpayer concerning specified filing and payment obligations, the due date for filing specified forms and making specified payments was automatically postponed to July 15, 2020. 

This relief was automatic; affected taxpayers did not have to call the IRS or file any extension forms, or send letters or other documents to receive this relief.

[Footnote 1]

IRS Keeps July 15 Tax Deadline

tax deadline

Treasury Secretary Steven Mnuchin announced the change in the tax return deadline back in March and continued to discuss the possibility of pushing the tax deadline beyond July 15 until recently.

The IRS has now confirmed that the deadline will not automatically extend to October 15.

The US Treasury department has drawn the line at the administration’s consideration of such a move.

The IRS won’t extend the deadline, but they will provide payment options to help taxpayers in need as stated below:

“The IRS understands that those affected by the coronavirus may not be able to pay their balances in full by July 15, but we have many payment options to help taxpayers,” IRS Commissioner Chuck Rettig said in a statement. [Footnote 2]

How do I file an extension for my tax deadline to October 15?

tax deadline

If you need extra time beyond the IRS deadline of July 15, you can file an IRS extension.  

Taxpayers who may continue to need additional time to file could choose to submit the appropriate extension form by July 15, 2020, to obtain an extension to file their return. The extension date will not go beyond the original statutory or regulatory extension date of October 15, 2020.

Here is information on how to apply for an extension of time to file. 

Please be aware that:

  • An extension of time to file your return does not grant you any extension time to pay your taxes. 
  • You should estimate and pay any owed taxes by your regular deadline to help avoid possible penalties.
  • You must file your extension request no later than the regular due date of your return.

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

How may we help you?

At Donnelly Tax Law, we take care of filing an extension for our clients, just to make sure we always have plenty of time. 

Let us help you meet your tax needs. Talk with us today. 

Or do-it-yourself with our resources for doing your taxes, from e-books to online courses.

Be sure to join our conversation on Twitter and follow us @CryptoTaxFixer.

Whales Vs. IRS: Powerful Crypto Tax Lessons Learned (With Infographic)

Learn powerful crypto tax lessons by studying what went wrong when two crypto whales went up against the IRS.

Two American crypto whales shine a spotlight on powerful crypto tax lessons learned at the hand of insufficient tax and crypto defense against the IRS.  

Find out how avoidable mistakes and poor advice cost these two crypto whales over 1.3 million dollars in tax debt and penalties. Make sure to review the visual timeline for this 7 million dollar crypto court saga with our infographic featured at the end of this post.

Here is a penalty calculation estimate on the Strashny‘s attempt to get an installment agreement.

crypto tax lessons

Note: The “6651(2)(2)” is what is commonly called the “Failure-to-pay” penalty.

Summary Of Facts

crypto tax lessons

The taxpayers filed their tax return by April 15, 2018, and reported owing just over $1 million in taxes on their crypto gains. They did not pay the taxes hoping instead to pay over time using an IRS monthly installment agreement. The IRS collections office rejected their application because the couple could pay their taxes in full.

The taxpayers escalated the rejection through the IRS appeals process and until finally dismissed by US Tax Court on June 11, 2020.

Basic Crypto Tax Lessons Learned

crypto tax lessons

This court case offers the following basic lessons. But there are also two more powerful lessons to be learned.

  1. The law requires taxes to be paid in full, even if that means selling your crypto assets or borrowing against them. The IRS can seize assets to force taxpayers to pay.
  2. IRS Installment agreements are available for debts under $100,000 because a personal financial statement is not required. This loophole is intended to simplify debt collection. 
  3. Significant interest and penalties pile up while waiting on the IRS and appeals process. While dickering over the installment agreement rules, the initial debt of just over a million dollars grew by $80,000 by the end of 2018. The taxpayers then hired tax lawyers to argue their case before the US Tax Court. The lawyer costs (roughly estimated at over $10,000) are dwarfed by an additional estimated $170,000 in penalties and interest. This was the hidden cost of arguing a weak case in court.

This case offers some powerful crypto tax lessons about how to prepare smarter tax returns.

Powerful Crypto Tax Lessons Learned

crypto tax lessons

Power Lesson #1: The most powerful tool for fixing a tax liability is an amended tax return.

The taxpayers rushed to file their tax return by the April 15th deadline. They never challenged the underlying tax liability. If their return had reported the crypto gains using like-kind exchange treatment, they could have eliminated the entire tax bill. 

There was a lot of confusion in early 2018 (and remains) about how to report taxes on cryptocurrency income. If a doctor told you he had to cut off your arm, wouldn’t you get a second opinion? 

Power Lesson #2: Like-kind exchange is a potent tool for crypto investors to reduce or eliminate their pre-2018 crypto tax liabilities.

During the run-up of 2017, most traders thought that crypto-to-crypto trades shouldn’t be taxed until cashed out. Like-kind exchange treatment does exactly this. The cumulative gain on crypto-to-crypto trades is deferred until finally traded for cash.

If this taxpayer’s 2017 return was amended to use like-kind exchange, the taxes owed would be reduced to near zero, and over $250,000 in cumulative penalties and interest would be erased. This is the power of an amended return.

Most crypto traders in 2017 didn’t even report their crypto transactions thinking that like-kind exchange was automatic. It wasn’t. All trades claiming like-kind treatment must be reported on Form 8824. If not reported, then there is no like-kind exchange treatment. It is considered a failure to report income on a return.

READ MORE: Tax Expert – Picking The Best Method For Reporting Your Cryptocurrency Gains

How we help you experience the best crypto tax lessons.

I have helped taxpayers defer over $40 million in gains using like-kind exchange. We’ve done significant legal research and considered over 1400 court cases on like-kind exchange. The legal position is strong. Every traders’ situation is different. Schedule a consultation at donnellytaxlaw.com to discuss if like-kind exchange would be right for you.

Make an appointment today with Clinton Donnelly, LLM, EA.

Follow Me @CryptoTaxFixer

Please note that as of June 24, 2020 both of the images for this post have been updated if you downloaded them previously.

crypto tax lessons

Infographic source.

What Clients Are Saying About Donnelly Tax Law

Clients of Donnelly Tax Law are reporting top-notch crypto and expat tax reporting results with Clinton Donnelly and his expert staff of Enrolled Agents.

At Donnelly Tax Law, we believe every crypto taxpayer can have a “Bulletproof Crypto Tax Return.” Our website offers powerful do-it-yourself resources and full-service crypto tax preparation services. 

We’ve helped taxpayers owning cryptocurrencies:

  • Avoid over $40 million in gains by using Like-Kind Exchange calculations. 
  • Prepared over 850 anti-money laundering reports required for many crypto traders. 
  • Prepared over 1025 tax amnesty returns needed by crypto traders correcting back filings. (Our acceptance rate is 100% success.)
  • Moreover, we’re one of the few firms with experience defending crypto returns at an IRS audit.
  • We are experts at filing returns for expats and foreign corporations.
  • We have clients in 48 countries. 

But don’t just take our word for it.

Here’s what clients are saying about Donnelly Tax Law:

Clinton's expert advice helped me utilize international tax treaties to avoid double-taxation by the IRS. I will continue using Clinton as my tax professional for the years ahead and would recommend him to any US citizen living abroad as well as any US citizen who is involved in trading cryptocurrency.
Donnelly Tax Law Client
David
Sweden
The process was very easy. I feel confident my taxes have been done correctly and would like to thank him for the peace of mind this brings me.
Donnelly Tax Law Testimonial
Claire
Spain
Clinton took the bottomless headache of the crypto [currency] documentation required for taxes, and condensed it to a simple set of instructions.
US crypto tax services
Nathan
Saudi Arabia
Clinton assisted me in handling a complex cryptocurrency filing, for several digital currencies including Bitcoin, Ethereum, and Litecoin. His support allowed me to benefit from the financial growth opportunity of cryptos while conforming with developing US tax laws. It pays to stay on the right side of the law, and Clinton made it as easy and straightforward as possible. Thanks, Clinton!
US crypto tax services
Marc
Nevada
[Clinton] demonstrated deep understanding in a specialized area of tax law and is helping me achieve a great result – we’ve been able to go back and fix 5 years of mistakes and errors made by previous advisors that created significant financial impact. He’s also taken less time to complete the same work previously done by a small group of professionals. I’d be happy to recommend him to any American living overseas.
Donnelly Tax Law Client
Aaron
Norway
Clinton is very knowledgeable and has hands-on experience in dealing with international taxation matters specifically related to Canada/US reporting. Clinton was able to identify several mistakes in a prior return that was actually prepared by one of the Big 4 accounting firms.
Donnelly Tax Law Client
Umair
Michigan
Clinton is very knowledgeable and saved me money with my tax return.
US crypto tax services
Julie
Puerto Rico
He resolved my tax needs quickly and found discrepancies my last tax guys completely missed and saved me thousands of dollars in taxes. I wish I had found Clinton Donnelly years ago. Can't recommend him enough!
US crypto tax services
Emran
Texas
I had no idea about how to sort out my American taxes as an ex-pat living in the UK. Clinton made it easy and painless to get caught up on filing back tax returns.
US crypto tax services
Skye
UK
As a US expat working in Europe, I highly recommend Clinton Donnelly to help you file/declare taxes!
US crypto tax services
Danielle
Spain
I really recommend him to any American who is looking forward to sleep in peace regarding Tax Return filing in the States while leaving abroad.
US crypto tax services
Rafael
Panama
Not only did he simplify the process immensely, but he was clear, fast and professional. If you're an expat looking tax help, I strongly recommend connecting with Clinton Donnelly.
US crypto tax services
Max
Spain
Clinton helped me a ton with cryptocurrency related matters on my tax filing this year. He works quickly and professionally and has a well-honed process every step of the way.
US crypto tax services
Matthew
New York
Clinton relieved the stress of figuring out the taxes due on my Bitcoin trading last year. He was efficient and timely. He answered all my questions related to my wallet and international tax laws on reporting.
US crypto tax services
Todd
Arizona
Clinton saved us money on our first encounter! 
US crypto tax services
Deanna
Mexico
Mr. Donnelly was extremely professional, answered any questions, and gives exceptional service. I appreciate the attention to details and the handling of my taxes in such timely manner.
US crypto tax services
Rachel
Panama
I highly recommend Clinton if folks have foreign businesses or accounts in a foreign land as he is well versed with these types of returns and masters them.
US crypto tax services
Siddharth
Texas
I highly recommend Clinton if folks have foreign businesses or accounts in a foreign land as he is well versed with these types of returns and masters them.
US crypto tax services
Tyler
New York
I highly recommend Clinton for preparing tax returns for anyone with international interests.
US crypto tax services
Stuart
Texas
I thought do-it-yourself tax online tax preparation was straight forward but working with Clinton has definitely opened a new door for me.
US crypto tax services
Erich
Singapore
Clinton is extremely clever and truly knows the law environment you are working in. In our case, he even reviewed international tax treaties to improve our tax report, which ended up saving us a lot of money in taxes.
US crypto tax services
Santiago
Venezuela
I went through a dozen accountants, CPAs, and accounting partners. None of them were able to get my taxes filed, and after much searching and frustration, I finally found Clinton.
US crypto tax services
Ashray
Portugal
If you are an American expat it is imperative that you speak with Clinton about your situation before the IRS gets ahold of you. The IRS wants your money. Clinton can show you how to keep the IRS off your back and put more money in your pocket. Highly recommended.
US crypto tax services
Chuck
Panama
If you are an American expat it is imperative that you speak with Clinton about your situation before the IRS gets ahold of you. The IRS wants your money. Clinton can show you how to keep the IRS off your back and put more money in your pocket. Highly recommended.
US crypto tax services
Rudi
Panama
If you have distributed assets and income or are concerned about succession planning, Clinton will accurately guide you through the legal minefield of international laws taking into consideration your country of residence, source of income, source location of income, citizenship, time in country as well as other factors to determine your tax status and I trust his guidance implicitly.
US crypto tax services
Jim
Columbia
I would highly recommend Clinton for anyone working overseas and specifically anyone looking to utilize the Foreign Earned Income Tax Exemption. I simply cannot say enough good things about Clinton and have recommended him to numerous people.
US crypto tax services
Michael
Hong Kong
For months I tried tracking down an accountant or anyone who had the experience and brain to be be willing to do the work and help me out with my situation. So I contacted [Clinton] - 15 minutes later he had the information I needed to sort everything out!
US crypto tax services
Pascal
Malaysia
Without any hesitation, I recommend that anyone with a US tax issue and who is “technologically and paperwork challenged”.
US crypto tax services
Mary
Panama
He's very professional, explains things in a clear manner and has a system set up which makes it far easier to communicate via the internet, which is important to us since we live in a different city than Mr. Donnelly does.
US crypto tax services
Karin
Panama
I went through a dozen accountants, CPAs, and accounting partners. None of them were able to get my taxes filed, and after much searching and frustration, I finally found Clinton.
US crypto tax services
Benedict
Germany
[Clinton] saved me thousands on my taxes this past year. He is wise beyond belief of the complexities of the tax code and he is also patient and concise in explaining it to the people who think the tax code is tangle of complexities.
US crypto tax services
Patty
Digital Nomad
Clinton took care of my tax return twice so far, and I’m glad he did. He provided excellent advises with a very smooth communication. He masters his area of expertise, I definitely recommend him.
US crypto tax services
Melissa
Panama
Clinton took care of my tax return twice so far, and I’m glad he did. He provided excellent advises with a very smooth communication. 
US crypto tax services
Mehdi
Switzerland
Clinton was extremely helpful at explaining with great detail all the peculiarities of my situation and was very timely at returning all of my emails.
US crypto tax services
Ignacio
New York
Clinton prepared all the paperwork required and represented me whenever required to the IRS. He is extremely knowledgeable and a pleasure to work with.
US crypto tax services
Sandy
Canada
Clinton has been handling my taxes for the past 3 or 4 years. He's been a godsend! He provides clear and concise answers, excellent advice and amazing service. In today's political climate it's best to have all your bases covered with the IRS and Clinton's amazingly good at making sure you do.
Rebecca
Panama

Be A Happy Tax Client With Donnelly Tax Law

Now that you’ve heard from others who have benefitted from Donnelly Tax Law, consider becoming a happy client as well. 

Schedule a consultation today. 

Or do-it-yourself with our resources for doing your taxes, from e-books to online courses.

Follow Donnelly Tax Law On Twitter

Tax Expert: Picking The Best Method For Reporting Your Cryptocurrency Gains

Learn how the principle called Conservation of Gain has loosened IRS reporting requirements for cryptocurrency gains and what methods to use for reporting.

You invested in some cryptocurrency in 2019.

And for tax purposes, that means you have officially made the jump from a simple to a more complicated tax return.   

To add to the complexity, you will now be required to explain your cryptocurrency activity to the federal government for the first time when filling out your federal tax forms this year.

Chances are good that you may choose to use one of the various online calculation services when you decide to calculate your cryptocurrency gains.

At that point, you will need to answer which method you want to use to do your crypto reporting (FIFO, LIFO, etc.) when calculating your cryptocurrency gains.

This article will explain how to pick the best method for reporting your cryptocurrencies and why.

What is the best way to calculate my cryptocurrency capital gain?

Bitcoin halving cryptocurrency

You may be wondering if you choose to calculate using the FIFO (“first in first out”) method during one year, must you continue using this same method each preceding year?  

The short answer is no.  

Some crypto-traders think FIFO is the only way to calculate capital gain and wonder if it is legal to use methods other than FIFO.

And, what about other methods like the Average Basis Method? Is that an option to be considered?

What The IRS Has Said About Cryptocurrency Reporting

cryptocurrency

The IRS issued guidance on the method for calculating cryptocurrencies in October 2019 in their FAQ about virtual currency. 

In the IRS virtual currency FAQ question 38, they permit the use of “specific instruction” after the trade has occurred.

They said, “You may choose which units of virtual currency are deemed to be sold, exchanged, or otherwise disposed of if you can specifically identify which unit or units of virtual currency are involved in the transaction and substantiate your basis in those units.”

This instruction means you can choose which coin is sold “after the fact” as long as you can track which units were sold and what you originally paid for them.

You don’t even need a method for choosing as long as you account for every sale. 

With that said:

  • FIFO is okay. 
  • LIFO is okay. 
  • Cherry-picking is okay.

Previously, IRS guidance was determined by IRS regulations, which required the first units to be purchased to be the first units sold. This method is known as FIFO, or “first in first out”.

READ MORE: Crypto Tax Fixer – Everything You Need To Fix Your Past Crypto Tax Returns

Why did the IRS loosen their cryptocurrency regulations?

crypto traders

The answer is the principle of Conservation of Gain. This principle says that regardless of the method used, the cumulative gain over the long haul is still the same.

This principle follows from the numeric properties of arithmetic that you learned in high school algebra.

Consider this example:

  1. In January of year one, I buy one Coin1 for $1000
  2. In July of year one, I buy another Coin1 for $2000
  3. In year two, I sell one Coin1 for an equivalent amount of Coin2 for $10,000
  4. In year three, I sell my remaining Coin1 for $3000, and all the Coin2 for $4000. 

First note that the total investment of $3000 in year one is ultimately sold in year three for $7000, or a total gain of $4000. 

This $4000 is the gain that is conserved.

Does it matter which Coin1 is traded in year two?  

The FIFO method says the first one. The LIFO method would pick the second one.  

Does it change the amount gained?  

The answer is yes in the first year, but not in the long run. 

In the example of FIFO and LIFO below, the total gain over the two years is still the same, $4,000. 

cryptocurrency

What is the real crypto calculation issue?

The real issue between FIFO, LIFO, and other methods is how much gain is eligible for reduced long-term capital gains rate. An asset qualifies for long-term gain if it is held for over a year. The long-term gain rate for most people is 15% versus short-term gain taxed at marginal tax rates of 22-35%. 

What about Like-Kind Exchange?
Like-kind exchange (LKE), tax code section 1031, was a valid treatment for cryptocurrency until 2018 when the law was limited to just real estate. Many traders and tax professionals feared that the IRS would allow LKE treatment for crypto-to-crypto trades.

In our example, the gain on the trade from Coin1 to Coin2 is deferred until traded for cash in year 3. The total gain is still the same, $4000. Therefore, LKE was just another method like FIFO and LIFO. No gain is lost. The gain is conserved. This is why the IRS isn’t distressed by the use of LKE on crypto-to-crypto gains before 2018.

Changing methods is allowed.

Because of the principle of conservation of gain, a trader is free to use any method he wants each year. You are free to use FIFO in 2018 and LIFO in 2019. This assumes that the LIFO calculation is based on the FIFO results of the prior year FIFO. As far as IRS FAQ Question 38 is concerned, it is all “specific identification.”

Bulletproof Tax Tip! I recommend using whichever method generates the lowest tax liability for the specific year. Some crypto gain calculation services offer an “optimized” or “minimized” method, which prefers long-term over short-term gains when possible. I encourage using these methods.

What about using the Average Basis method?
Other countries use various permutations of the average basis method. It is also allowed for dividend reinvestment plans in the U.S. The average basis method does not violate the principle of conservation of gain. 

However, it is not permitted by the tax regulations or the FAQ. There must be a specific identification for calculating the cost basis on every trade. Averaging doesn’t do this.

No calculation method is based in reality.
Regardless of which way you choose, none are anchored in the reality of what was traded by the exchange.  

Presently, exchanges trade whichever coin they want irrespective of the coin’s cost basis or purchase date.  

The crypto gain calculation services calculate the gain without consideration of what happened on the blockchain. 

We’re talking taxes here, so make sure not to muddle the tax conversation with reality.

The current situation of calculating capital gains using exchange transaction records becomes increasingly painful every year.

What is the future of cryptocurrency gain taxation?

cryptocurrency

The tax planners at the Treasury Department, IRS, and Congress understand that treating cryptos like other assets is inadequate treatment. They know that a new asset class is needed. 

Blockchain, smart contracts, and decentralized finance are continuing to transform the financial asset world. I doubt that Congress will approve a new asset class for several years as the innovation continues.

I believe that the IRS will have to adopt an average basis method for crypto assets because it is the only method structured for the long haul with the most connection to reality. Some have proposed a mark-to-market method for annual taxation, but this defeats the purpose of incenting long-term gains through lower tax rates.

We Love Complicated Crypto Tax Returns

At Donnelly Tax Law, we love complicated crypto tax returns. We’re also experienced and qualified at using these various methods for cryptocurrency reporting, including like-kind exchange for 2017 tax year amendments. 

Schedule a tax consultation with us today:

And benefit from powerful do-it-yourself resources for filing and amending your taxes.

Taxes Are Sexy! Transcribed Interview Between Clinton Donnelly and Paul Jordan

Get excited to learn about taxes in this podcast interview between Clinton Donnelly and Paul Jordan. Find out why taxes are sexy!

Taxes. Do they have intrigue? Can they be interesting? Excitingly appealing? Even sexy?  

We think so! At Donnelly Tax Law, we believe taxes are sexy because the knowledge that can save you big money on your taxes is desirable. 

In this interview on Life, Love, and Coffee with Paul Jordan, we provide clarity on how you can get your taxes right because of how quickly everything is changing moment by moment. 

Paul says, you’ve got to make sure you stay on top of those types of things, so he wanted to talk about where we are now and where we should be when it comes to taxes.

What makes crypto taxes complicated?

taxes

Clinton Donnelly: Well, Paul, I talk to a lot of crypto traders. A lot of crypto traders are unique because this is the only time they’ve ever invested.

Until getting involved with cryptos, their tax lives had been simple. 

They took their documents to a tax professional, or they used Turbo Tax, plugged in the numbers, and filed a return. 

But once they started trading cryptos, they moved into the echelon of a complex tax return. 

It’s a complicated tax return because:

  • the accountants don’t know what to do with a crypto tax return
  • the tax software packages like TurboTax and TaxAct don’t know what to do with a crypto tax return

So crypto traders wind up on their own. And it’s scary for everybody. 

What hit me in these last couple of months is that most people don’t know how to do a tax return in general. 

Before using tax software, you went down to the post office, and they would have racks of tax forms. 

You’d go home, fill out the forms, sign it, and mail it in. You had a basic familiarity with these things.  

But now, people have no idea how to read them.

By relying on high volume tax preparer companies and depending on tax software packages, we’ve made ourselves ignorant about how taxes work and how they operate. 

That’s why many younger crypto traders are overwhelmed by the impact of their crypto trading on their taxes.

Getting Back To Basics With Your Taxes

I’ve developed some educational things, and this is my passion. I realized I don’t need to teach people how to do crypto taxes; I want to teach people how to do taxes in general. Nobody’s ever done that.

We’re creating courses at DonnellyTaxLaw.com to help you overcome your fear of the IRS and learn to do your taxes. 

Paul Jordan: Oh yeah, say more.

Clinton Donnelly: There are a lot of topics to cover. One is, what is tax? Is it our income? Is it our profit? What are those things? And then we move into what are the forms? And then, how do you submit the documents? Do I use a preparer or do it myself? And then what happens if I get a letter from the IRS? 

I’m excited about teaching people to do their taxes and taking control of their lives so that taxes are not a thing that makes you terrified before the taxes are due in April.

When I was growing up, nobody ever taught me about the most significant expense I’d have in my entire life: taxes. Or how to fill out my tax form. The forms that are the most considerable interaction I’d ever have with the U.S. government.

And today, my issue with the accounting profession is that they’ve entirely abandoned crypto owners. Most accountants will not accept any responsibility for your crypto tax return.

Taxes Fall Into Three Categories

Clinton Donnelly: The first category would be an income tax. You’re taxed on income that you make. Many people hate this tax, but I would rather make a million dollars and pay $200,000 in taxes than make $20,000 and pay no taxes. So taxing my income, that’s not bad. I can swim faster than they can come after me.

The second tax category is a consumption tax. This would be a sales tax, or licenses and things like that, or excise tax. They consume you with buying things. When we think of the Boston Tea Party, there was a 2% excise tax placed on the sale of tea, and they decided to protest on that 2%.

The third category of taxes is a wealth tax. Now, this is a very harsh tax, in my opinion. It taxes you every year because you own something. You didn’t earn money; you didn’t consume it; you just have it. This would be property taxes. For example, your home in the United States.

Crypto Traders and Taxes

Bitcoin halving

My mini-courses will teach you to think differently about taxes, about retirement, about your assets, and how to report cryptocurrencies. 

Education can help you overcome your fears, and most people are just afraid of taxes.

There are a couple of things that crypto traders need to understand: when you trade with cryptocurrencies, every time you trade from coin one to coin two, that’s a taxable event. 

Now, what do I mean by a taxable event? Well, if you made money on that coin. 

If you bought the original coin in U.S. dollar terms, and you bought it for $1,000 and you sold it for $2,000,then that’s a $1,000 gain, right? 

Let’s say you flip it around the other way. You bought it at $2,000 and it went down to $1,000 when you sold it. That’s a negative gain. That’s a negative $1,000 gain, or we might call it a loss. There’s a positive gain or there’s a negative gain.

Now, I’m not saying taking the cash out. I’m just saying that if I jump from coin A to coin B. When I do that conversion, I’m selling coin A. I have to look at what I bought coin A for, and that’s the gain. Every single one of those, every single gain, is a taxable event, positive and negative. 

We add them all up, you net it out at the end of the year, and you have to pay taxes on the gain. It does not matter whether you took those profits out in cash to your bank account. That is not relevant because it is a gain nonetheless. 

Many crypto traders are starting to become aware of the fact, “Oh yeah, well, if I have gains, I’ve got to pay taxes on the gain.” But guess what? If you had a loss, those losses are negative gains. Those negative gains reduce how much you have to pay on the positive gains because you add them all together. You want negatives to offset your positives.

I helped a guy reduce his taxable gains by $15,000 last week by claiming all his losses. That’s about $4,000 that he cut off his tax bill from losses.

Paul Jordan: Wow. Wow.

Most Americans Still Need To File Their Taxes

I did a poll recently, and about 70% of Americans haven’t done their taxes. I encourage Americans to give it a try on their own.

Taxes are the most significant expense that you’re ever going to have in your life. One-third of everything you earn is going to go to taxes. It’s time to start thinking about it.

If you need a consultation, if you want us to do your taxes, or you have a question, sign up for a consultation, and we will talk. My website is donnellytaxlaw.com. 

I have an advanced law degree in international financial regulation, including taxation. I’m an enrolled agent. I’ve specialized in complex tax returns, particularly crypto tax returns and tax returns for ex-pats, people living outside the U.S. We also specialize in doing foreign corporation reporting. 

Cryptocurrencies have a lot in common with people outside the United States because you’re investing in crypto exchanges outside the United States. You start to run afoul of a whole slew of U.S. anti-money laundering laws, so really focus on the anti-money laundering compliance because this is the easiest way for the IRS to crush anybody on their crypto taxes.

I’ve done over 1,000 tax amnesty returns and about 800 crypto returns. My largest trader is up into like 200,000 transactions a year, that type of thing. So we will never reach a point of being paralyzed.

Tax Returns That Are Bulletproof Against The IRS

taxes

An excellent tax preparer pays for themselves. 

You can have a bulletproof crypto tax return, a tax return that keeps you safe from the IRS when they shoot their bullets, which is my focus. Not only do we do tax returns, but I defend crypto tax returns before the IRS.

We have one going on right now where we’re protecting them. We’re on top of the research, the legal analysis, and all that stuff. You might be surprised to hear this, but 98% of all tax preparers have never defended a tax return before the IRS. That’s like getting in the car with a taxi driver who just got his license yesterday.

Paul Jordan: Right.

Clinton Donnelly: So that’s the difference in our company: we love what we do, we love helping people. My biggest passion right now is to help as many people as possible, so I’m creating these tools to empower people to build their own crypto bulletproof tax returns.

So that’s a bit about me and Donnelly Tax Law. Love to help anybody, set up a call if you have a question.

Paul Jordan: That’s fantastic. Well, I think that’s an excellent jumping-off point. I want to thank you so much for coming on the podcast today, educating us, and getting us to move forward on taking care of our tax responsibilities.

Listen To The Podcast

Follow Me On Twitter

Get Our Newsletter

Get my bi-weekly newsletter with helpful tax resources and keep us at hand in case you ever need our help.
You’ll also receive a special discount code for signing up!

The Membership Crypto Traders Must Have For The Best IRS Defense

Crypto traders are being targeted by the IRS. Learn how our CryptoTaxAudit membership is the best and most affordable peace-of-mind policy that defends you.

The IRS is looking for a new strategy to crack down on crypto traders.  The headlines have been all over the crypto news, from Forbes to Coindesk. 

  • The IRS is hiring consultants to crackdown on cryptocurrency tax evasion. 
  • The IRS approaches contractors to audit your crypto tax returns.
  • The IRS solicits contractors to examine crypto trader’s tax returns. 

So the big question is, have you decided who your go-to tax preparer is yet?  

If the answer is yes, have you asked your tax preparer if they have ever defended a crypto tax return to the IRS?   

Did you know that 98% of tax preparers have never defended a tax return before the IRS? And of that remaining 2% how many of them know anything about crypto?  

We are talking about a microscopic field, and it is crucial when you are picking a tax preparer that you can find someone that can defend you until the end.

Defending Crypto Traders

crypto traders defense

At Donnelly Tax Law, we do more than prepare tax returns. We have actually defended crypto traders in audits from the IRS.   

We are specialists in going back and repairing prior tax returns where the cryptos have been misreported. We have done over 1000 tax amnesty returns as compared to other tax firms who have had no experience here.  

We know how to defend people before the IRS. 

If a tax preparer has never defended their work on crypto tax returns, how do they know that they did it right? 

How do they have a feedback loop that tells them what is working with the IRS and what isn’t working to come back and change how they prepare the return? 

Without that feedback, it is essentially like preparing crypto tax returns in the dark.  

If you are worried about getting the best defense against the IRS when you get a letter, boy do we have a membership for you.

Audit Defense for Crypto Traders

crypto traders

Our CryptoTaxAudit membership is designed as a peace-of-mind policy. Here is how it works. You pay a low annual fee of $97 a year. If you get contacted by the IRS on any tax return, you have experts on hand who can handle the situation, and these experts are the best in handling crypto.  

If the IRS contacts you, they may be auditing your cryptos, but chances are it is to audit something else on your tax returns.

People are scared because the form letter approach is disturbing to people. People are terrified of interacting with the IRS.

We can handle all the common issues, and we are experts in managing the crypto issues.

Most people have simple tax returns where you simply report all the w2’s and 1099s, how many children you have, and it is done with little to worry about.

It’s simple in that it is rarely going to experience an audit. But you may get an audit letter because you forgot to submit something that you should have. Maybe you left off a 1099 because it came late or didn’t come to you.

But, when you introduce cryptocurrency tax reporting, even someone who would otherwise have a simple tax return, now has a complex tax return.  

Why? Because reporting income from cryptocurrency, anti-money laundering forms, and financial losses from crypto is a skill that few accountants have, and that tax software typically does not support.

What’s so complicated about tax reporting for Crypto Traders?

cryptos reported on anti-money laundering forms

Tax reporting for crypto traders is complicated because there is no W2 or 1099 to plug in answers from. You have to interact with the tax form itself. As a result, there is a chance for mistakes. It may not even be a mistake on your part; it could be a mistake on how the IRS is looking at what you reported.

Either way, the moment you get a letter from the IRS, there is a problem. It may not even be something that you did wrong. But it is a problem because now you have to deal with the IRS to get this solved, and they are pretty tenacious.

A lot of people look at it, and to them, it is a simple matter. They just want to call up the IRS and talk to someone who knows more and explain the problem to them.  

However, every time you call you get someone different and you are going to have to wait about 40 minutes to talk to somebody, which can be painful.  

The person on the other side of the phone typically “does not know how to fix the problem”. 

That is one of the flaws that people have with that assumption: I will just call the IRS.

READ MORE: Crypto Audit Defense With CryptoTaxAudit

Calling the IRS

When you call the IRS, it’s just like on TV when the police bring you in for questioning. You have Miranda rights, and you never say anything until you have a representative/lawyer present.

Because the police are experts at the good cop/bad cop, they will suck you into admitting something that you have to fix later. The same thing is true with the IRS.

Especially when you call up collections. I call them up for clients, and they immediately go for the jugular on me. They ask, where does the client work, where is his banking? And you think these are innocent questions but, no, these are the places they are going to go to seize your assets. 

They ask it in such a way that these first two questions have to be answered, or I can’t help with the situation. That is how they manipulate the call. 

The client that thinks they will just call up the IRS and explain it to them has already made the first mistake.

The IRS doesn’t want to know their story. They want cash, and they want it right away. Especially when we go into cryptos, you are into a mess.

Crypto Traders Can Have Peace of Mind

Why do you have peace-of-mind as a member of CryptoTaxAudit?

The moment you get the letter. You call me up. You give me a copy of the letter. I will talk to the IRS for you. I will translate the problem. I will tell them if it’s a small problem or big problem. I will call the IRS up. I will talk to the IRS as an intermediary. I will defuse the situation with the IRS. They don’t get information from me that we don’t want to disclose to them. They don’t get your banking information. They don’t get your employer’s information. They don’t get your phone number.  

They talk to me, and we go straight to the matter. They know they can’t get that from me because I am an enrolled agent. Most enrolled agents are former IRS, so they can’t pull the wool over their eyes.

That is the most significant value. 

And if the issue has to deal with crypto. What we say and what we deliver to the IRS is so critical.

We don’t want to spend time unwinding a mess somebody made trying to call the IRS themselves. 

Once they have you in their target, there is some IRS guy who has a quota they want to make off your income. And you need to defend yourself.

That’s representation. We are talking to the IRS on the phone.

Cryptos Take Audits to Another Level

crypto traders

As part of an audit, there are a lot of things that happen.

One is gathering records, and the client has to do that. He knows his records. We don’t know that. We don’t go to their house and pull the box from under their bed. The client has to gather the records.

But now we have to organize the records. These are expenses. These are incomes. These are crypto-related. We have to organize it and put it into a fashion, so we can answer the questions the IRS is asking for us. They will ask for copies of all your bank statements for whatever year they are looking at; They will want them all for that year. They are looking to see what the deposits are. Deposits are typically a sign of income.  

They are going to look at all the deposits and say it seems to me like you made x amount of money because of all your deposits. They are going to ask me how it didn’t happen that way. You are claiming deductions for expenses you had. They are going to go through your checkbooks/credit card statements. They have a different way of looking at how you do your taxes. They are looking at the external factors to prove that you are reporting all the income you got.

That is the organization. The client can do all that, or we can do all that. Typically, The client usually has us do that, and it’s a billable service.  

Once we put it together along with a cover letter, we have what we are going to send to the IRS. We are going to send the whole packet to the IRS.  

All the interactions with the IRS are free if you are already a subscriber to CryptoTaxAudit when you get an IRS letter. However, all our communications with you, the client are billable hours. We empower you to choose how to minimize or maximize your time in that process.

What Else Do Crypto Traders Get With CryptoTaxAudit?

anti-money laundering

Also included is all the tax law research where we research the tax law and code to find our angle of attack. That is included as well, and it is a valuable service. We understand the tax law, the court cases, we do research, we hire outside lawyers to do additional research when we need to. That’s the expensive work if you hired a lawyer, and with CryptoTaxAudit that is all free.  

The actual speaking to the IRS is free. The reason we do it for free is because you’ve got the subscription.  

You are paying as a membership group for the one member who needs our service to cover the time. This membership is how we can make this costly service available to everyone.  

The first call with the client is billable.   

Approximately 14 million taxpayers (roughly 10% of all taxpayers) owe money to the IRS. They are on payment plans, or they are being audited to get on payment plans.

This number was already expected to shoot up to 21 million before the Coronavirus, which is sending everyone into bankruptcy. So we are looking at an explosion of need. We are looking at 1/6th of all Americans having tax issues with the IRS. Which means they are getting letters from the IRS. 

The IRS stimulus package is like a free loan handout and the IRS will inevitably seek repayment by other means. Therefore, they are tempting people into bad situations with the IRS.  

The reality is that crypto traders are making a lot of money and the IRS is broke. It makes crypto traders a major target.

CryptoTaxAudit for Crypto Traders

For our $97 annual membership plan, you get a peace-of-mind policy knowing that as a crypto trader you are in the best hands to handle your audit defense with the IRS. You get unlimited representation against the IRS. We will call them as many times as need be to solve your situation. 

Our time building up your legal defense is 100% free, compared to lawyers who are charging $250 an hour for this service, and they don’t know crypto as we do. 

Also included is all the tax law research where we research the tax law and code to find our angle of attack. That is included as well and is a high-price service. We understand the tax law, the court cases, we do research, and we hire outside lawyers to do additional research when we need to. That’s the expense work if you hired a lawyer, but with CryptoTaxAudit that is all free.  

Become a member of CryptoTaxAudit today. Don’t wait. Members get this exclusive deal. We can still help you as a standard billable service if you have already received an IRS letter. 

This membership is our way of making this defense affordable to everyone and for everyone to have peace-of-mind in knowing they have the best protection against the IRS.

Learn more about CryptoTaxAudit.

Get Our Newsletter

Get my bi-weekly newsletter with helpful tax resources and keep us at hand in case you ever need our help.
You’ll also receive a special discount code for signing up!

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.  

Follow Me On Twitter

Get Our Newsletter

Get my bi-weekly newsletter with helpful tax resources and keep us at hand in case you ever need our help.
You’ll also receive a special discount code for signing up!