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?
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
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
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.
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