In this interview with Crypto Tax Girl we will get her expert opinion on IRS tracking crypto traders, her best crypto tax tips and what are some of the most common mistakes made.
Crypto Tax Girl, or Laura is helping crypto traders with $1000 to $10 million invested stay on the good side with IRS.
It’s hard to predict what Satoshi Nakamoto might think about the fact that Bitcoin and cryptocurrency holders around the world have yearly qualms about their potential tax burdens.
But few people could have foreseen the journey Bitcoin has had since first mined by computer aficionados back in 2009.
The journey from just a few cents to over $20,000 meant incredible returns for some of the early adopters. But also some very big tax burdens.
So what can cryptocurrency holders do, to manage their crypto tax burdens, and avoid being reported for tax fraud?
To learn more about this subject we spoke with an expert in this field. Laura Walter also known as Crypto Tax Girl.
Laura is a CPA and cryptocurrency tax specialist, who’s been helping crypto holders understand that trying to avoid paying your taxes is not to be recommended. But not necessarily something that you need to be afraid of.
Hi Laura, you have a wide range of clients (from students to small-business owners and C-suite level business executives), what are the usual tax topics they need help from you with? And how does this differ between students to C-level executives?
I do have a wide range of clients, and though they may differ in their personal/professional lives, they all share a common interest in crypto. I spend the majority of my time helping them reconcile their transactions, prepare their crypto gain & loss reports, and prepare their taxes.
The biggest difference I see between my clients is the amount invested and the number of transactions. Some clients have less than $1,000 invested, and some have over $10 Million invested. Some have less than 100 transaction, and some have over 100,000 transactions.
Some clients have less than $1,000 invested, and some have over $10 Million investedLaura Walter aka Crypto Tax Girl
What are the most common mistakes that you see people do with their crypto taxes?
Forget to reconcile their transactions. They just upload all of their data to one of the crypto tax softwares, and then immediately try to generate a tax report. This usually leads to inaccurate numbers and frustration by the user.
However, if you put garbage in, you’re going to get garbage out. By going through and reconciling the transactions, correctly identifying and treating various types of transactions, and ensuring there are no holes in the data, you will get a much more accurate calculation.
What do you think will happen in the coming years regarding crypto taxes and regulation in the U.S? What can we expect?
We are due for new guidance, and per the IRS it was supposed to be released in June; however, we are yet to see it. I suspect the new guidance will address more complex crypto transactions that have come about since the original guidance in 2014, including forks, ICOs, masternodes, staking, airdrops. etc.
Hopefully it will also address the best way to assign cost basis and holding period, which accounting methods are acceptable (FIFO, LIFO, etc.), and many of the other outstanding issues that the crypto community is lacking guidance on.
Business owners that wants to accept cryptocurrencies as a payment method might be scared that it would require a lot of extra work. What’s your tips for them?
It really isn’t that much work 🙂 You just have to include the value of the crypto at the time you receive it as income, and then that same amount becomes the cost basis.
If you convert it right away to fiat, there would be no gain or loss, because the sale value would be the same as the cost basis. If you decide to hold the crypto though for an extended period of time before selling it, then you would also incur a capital gain or loss that would need to be reported on the business tax return.
And for consumers wanting to pay with cryptocurrencies, that also means additional tax burdens. Do you think the IRS could ever do something to minimise the tax burden for these types of crypto transactions?
I would love to see a de minimis law put into place here. A de minimis law essentially says that if a personal transaction is under a certain dollar amount, then you don’t have to record a gain or loss.
For example, there is currently a $200 de minimis exception for foreign currency, which is why when you travel to Mexico, you don’t have to report capital gains and losses on the fluctuating Peso to USD rate every time you buy a piña colada or a taco with Pesos.
We saw this very interesting tweet thread where you commented on a presentation given to special agents in the IRS Criminal Investigation division around investigating taxpayers who hold crypto.
The IRS also plans on serving subpoenas to collect bank, credit card, and Paypal records. These records should be analyzed to determine if any payments in or out went to parties that can send or receive cryptoLaura Walter aka Crypto Tax Girl
The IRS also plans to review Facebook, Twitter, and other social media platforms to find publicly available BTC and ETH addresses.Laura Walter aka Crypto Tax Girl
Wow’s our first reaction. Going through taxpayer’s download histories, to collecting bank, credit card and Paypal records looking for crypto-related payments sounds extreme.
How scared should crypto holders be? This seems very serious, and potentially a bit alarming when it comes to questions around our personal privacy, data protection, etc. What are your thoughts on this?
This presentation, along with the various cryptocurrency letters that the IRS is currently sending out shows that the IRS is concerned about cryptocurrency compliance, and they are putting forth efforts to ensure compliance among taxpayers.
I don’t know how many people will be subject to the tactics described in the presentation by the IRS Criminal Investigation Division, but if you do hold crypto and you have traded, sold, or spent it this year, or in previous years, you have taxable transactions that need to be reported, and now is the best time to get compliant and up to date on your crypto filings!
Do you keep an eye out for how crypto taxes work in other countries? Any positive examples that lead the way?
Admittedly, I don’t know a lot about regulations in other countries, but I know that in Canada they let you carry your capital losses forward and backward, where in the US we are only allowed to roll our capital losses forward.
This has hurt many taxpayers who had a lot of big gains in 2017, but then a lot of big losses in 2018, because they were forced to pay taxes on the capital gains in 2017, but then can’t use any of their 2018 losses to offset those gains.
So for example, if a taxpayer had $200,000 in gains in 2017, but had $100,000 in losses in 2018, and they were in the 30% tax bracket, they would pay $60,000 in taxes in 2017, but would only be able to deduct $3,000 of losses in 2018, and would carry forward the remaining $97,000 indefinitely until they had future gains to offset the losses, or until the $3,000/year ran out.
Finally, what would be your recommendations to crypto tax holders?
Keep detailed notes of the types of transactions you enter into, regularly download your history from your exchanges and wallets, and if you haven’t already, start reconciling your data and accurately report your crypto transactions on your tax return.
If you need help with any of this, feel free to reach out, or alternatively, I actually have a couple of detailed course that walks you through crypto taxation works, and exactly how to calculate everything and report it on your tax return.
I have had a ton of clients take this course and have no problems handling the calculations.
Thanks to Laura for taking her time to speak with us. As cryptocurrency traders ourselves we know that at first sight dealing with your tax reports might seem overwhelming.
But it doesn’t need to be unmanageable. And if you do have questions, or would like to get Laura’s help. Reach out to her via her website CryptoTaxGirl.com
We hope you like this interview, if you also want to learn more about this check out our guide on crypto taxes.
There are also crypto tax tools that can help you deal with your taxes more easily.
Per Englund – Founder of Go CryptoWise a cryptocurrency and tech fan that want to see better and smarter products and services that makes our lives better and easier