 What is going on ladies and gentlemen welcome back to Bitcoin daily for another video today? We are talking about Taxes that's right crypto currency taxes. We get a lot of questions about this So we finally were able to gather all the information And put it together to present it to you guys we're gonna jump right in because man, if you guys knew what I just went through trying to get cute with this video and Instead it was spent six hours basically wasted and then decided to just come back to Powerpoint so yeah, man. I'm trying to just get this done at this point Um as a disclaimer guys this video is for informational purposes only and should not be Construed as tax or investment advice Please speak to your own tax expert CPA or tax attorney on how you should treat taxation of digital currencies All right, just wanted to get that out the way now. Let's jump in So crypto currency tax policies are confusing people around the world this guy breaks down Specific crypto tax implications within the US but similar issues arise in many other countries Cryptocurrencies like Bitcoin have gained significant popularity over the past few years and into 2020 this rise is This rise in popularity is causing governments to pay closer attention to the asset Recently, we've seen the IRS release new Cryptocurrency tax Guidance and start sending out thousands of warning letters to non-compliant cryptocurrency investors The question everyone is asking is how is cryptocurrency handled for tax purposes? So you can see here the guidance that they released and the letters that they've been sending out to people How's cryptocurrency taxed? According to the official IRS guidance of Bitcoin and other cryptocurrencies should be treated as property for tax purposes Not as currency. This is true for all cryptocurrencies such as Ethereum, Litecoin, XRP, etc This means that crypto must be treated like owning other forms of property such as stocks gold or real estate Just like you would with trading stocks Then you are required to report your capital gains and losses from your cryptocurrency trades on your taxes Felling to do so is considered tax fraud in the eyes of the IRS So guys make sure to report your taxes because not like it says here It is fraud and the eyes of the IRS if they find out that you did not report it And yeah, as is explained here There there forms of property just like stocks gold and real estate. So you're taxed through capital gains All right, and here's the form Where it says, you know, how's virtual currency treated for federal tax purposes blah blah blah you get the point So you're probably asking yourself now. How do you calculate your crypto capital gains and capital losses? Calculating capital gains and losses for your cryptocurrency trades is relatively straightforward and we will walk you through the process However before doing the calculations, you need to understand taxable events, which is what we're jumping into right here Now what is a taxable event? A taxable event is simply a specific action that triggers a tax reporting liability In other words, whenever one of these taxable events happen You trigger a capital gain or capital loss that needs to be reported on your tax return It's as simple as that the following have been taken from the official IRS guidance from 2014 as to what is considered a taxable event in the world of crypto and any of these scenarios if any of these scenarios apply to you You have a tax reporting requirement So guys basically if you guys fall under any of these you have to file taxes You have to report taxes on it So if you are trading cryptocurrency to fiat currency like the US dollar it is a taxable event Trading cryptocurrency to cryptocurrency is a taxable event You have to calculate the fair market value in USD at the time of the trade So if you're trading, you know between the pairs each trade is a taxable event Using cryptocurrency for goods and services is a taxable taxable event Again, you have to calculate the firm market value in USD at the time of the trade Earning cryptocurrency as income is a taxable taxable event from mining or other forms of earned cryptocurrency Now what is not a taxable event? Giving cryptocurrency as a gift is not a taxable event. A transfer is not a taxable taxable event You can transfer cryptocurrencies between exchanges wallets without realizing capital gains and losses and buying cryptocurrency with USD is not a taxable event You don't realize gains until you trade use or sell your crypto. All right So step one of determining your cost basis Now that's clear what you must report or when you must report your crypto transactions It's important to understand the exact process behind doing so. The first step is to determine the cost basis of your holdings Essentially cost basis is how much money you put into purchasing your property for crypto assets It includes the purchase price plus all other costs associated with purchasing the cryptocurrency Other costs typically include include things like transaction fees and broker Emissions from the exchanges you purchase crypto from so to calculate your cost basis you would do the following Purchase price of crypto plus others other fees Divided by quantity of holding equals cost basis For example, if you invested five hundred dollars in litecoin back in November of 2017 that would have bought you about 5.1 litecoin Let's say you also paid coin base or by an ants a 1.49 percent transaction fee on the purchase your cost basis will be calculated as such $500 plus 1.49 percent times 500 divided by 5.1 equals $99 and 50 cents per litecoin All right The second step In determining your capital gain or loss is to merely subtract your cost basis from the cell price of your cryptocurrency Cell price is also often referred to as the fair market value The equation below shows how to arrive at your capital gain or loss fair market value minus cost basis equals capital gain divided by Or I mean, I'm sorry equals capital gain or loss. I'm getting confused with all this math As an ex as an example Let's say you sold exactly one litecoin a month later because the price had doubled to two hundred dollars per coin This would be considered a taxable event creating crypto to fiat currency And you would calculate the gain as follows 200 minus 99.50 equals a hundred point fifty capital gain a hundred dollars and fifty cents capital gain 200 dollars is a fair market value in US dollar at the time of the trade 99 point 50 $99.50 cents is your cost basis in the asset You then owe a percentage of this a hundred dollars and fifty cents gain to the government on your taxes All right. I hope that makes sense now. You're probably asking yourself What if I lost money trading crypto? I know many people do so if you incurred a capital loss rather than a gain On your cryptocurrency trading you can actually save money on your taxes by filing those losses Many investors even strategically sell crypto assets, which they have losses into reduce their tax Liability at the end of the year. This strategy is commonly referred to as tax loss harvesting. All right determining fair market value The simple capital gains calculation gets more complicated when you consider a crypto to crypto trade scenario Remember, this also triggers a taxable event. Let's look at another example to gain understanding of how fair market value ties in Let's say you purchase a hundred dollars of Bitcoin including transaction and brokerage fees that hundred dollars currently buys about 0.01 Bitcoin now, let's say two months later. You trade all of your 0.1 Bitcoin for 0.16 either How would you calculate your capital gains for this coin to coin trade? It all depends on what the fair market value of Bitcoin was at the time of the trade Let's say that at the time of the trade 0.01 Bitcoin was worth $160 this would make the fair market value of 0.01 Bitcoin $160 you would then be able to calculate your capital gains based off this information 160 minus 100 equals $60 capital gain for that crypto to crypto trade You would owe the government a percentage of your $60 gain The challenge for traders This calculation and concept of fair market value sparks a large variety of problems for crypto traders Some some traders have been trading crypto for months possibly years and haven't been keeping track of the dollar value or Fair market value of their crypto at the time they traded it It's also not easy to keep track of USD values for most trades as they are mostly quoted in other cryptocurrency values Not in USD the fair market value information is needed for traders to accurately file their taxes and Avoid problems with the IRS depending on the volume of trades. They have carried out Calculating gains could become extremely tedious and potentially impossible to do by hand If you haven't been keeping track of fair market value Imagine having to perform this calculation for hundreds or thousands of trades Because of this challenge a lot of cryptocurrency users are turning to crypto tax software to automate the entire tax Reporting process. So we'll talk about a crypto tax software in a little bit So the next question is how do I actually file my crypto taxes and to properly file and report your crypto transactions? You need the IRS form 89 49 and 1040 schedule D and you can check it out right there on your right hand side Why sips and water? I'm sorry my My face is kind of covering That tax form, let me see if I can move my face out the way. Nope. That's not it. I Move I moved something completely different. Oh my goodness not again, huh? Gotta move my All right, so this is just so you guys can see this and now I'm gonna try to move it back and Hopefully not fail Boom we did it guys guys guys. We did it We did it. Hey, it's all good. We did it guys. All right, so Let's all cryptocurrency trades and sells until form 89 49 Which is pictured to the side not below along with the date you required to crypto the date sold or traded your Pro your proceeds, which is a fair market value your cost bases and your gain or losses Once you have each trade listed total them up at the bottom and transfer this amount on Amount to your 1040 schedule D include both of these forms with your yearly tax return So imagine having to do all of this by hand No, thanks I'm short term versus long term capital gains One thing that has yet to be touched on this actual rate of your capital gains tax on Oops Let's start over one thing that has yet to be touched on is the actual rate of your capital gains tax That is because this rate is dependent upon a number of factors The first factor is whether the capital gain will be considered a short-term or long-term gain The most common rate in the world of Cryptocurrency is the short-term capital gain which occurs when you hold a Cryptocurrency for less than a year and sell the cryptocurrency at more than your cost basis Short-term capital gain taxes are calculated at your marginal tax rate Check out this table that depicts the different tax brackets that you may fall under so it's all right here To demonstrate how to navigate the marginal tax brackets suppose. You're a single Fowler You made eighty five thousand twenty five dollars during the tax year and you purchased Bitcoin six months ago for five thousand dollars including fees and commission yesterday you sold Bitcoin for six thousand dollars a gain of $1,000 the $1,000 raises your income to eighty six thousand and twenty five dollars for the year Based on a marginal tax rate table the first five hundred of your gain is taxed at the twenty two percent rate Generating a hundred and ten dollars in taxes so twenty two percent rate is right here, which is forty thousand a hundred and twenty five to Or No, okay, so it's forty thousand and two right under this eighty So so you see how twenty two percent starts at forty thousand one hundred and twenty five dollars if you're a single individual and You can make up to eighty five thousand five hundred and twenty four dollars before Your rate goes from twenty two percent to twenty four percent So as you can see here The first five hundred of your gain is taxed at twenty two percent rate right here The remaining five hundred is taxed at the twenty four percent rate right here as it exceeds the eighty five thousand five hundred and twenty five dollar threshold this generates a hundred and twenty in taxes in total the One thousand dollar capital gain would generate two hundred and thirty dollars in taxes for the year This is the amount that you owe the government All right. I hope that was simple enough Just look at this chart here and And then and the numbers and depending if you're a single if you're married For heads of household, you know, it is different rates in different amounts. So check that out Now long-term capital gains now, this is taxed different and you could you guys will be able to see it right here For all of the holders out there or a hotellers If you held your cryptocurrency for a year or more you qualify for a lower long-term gain rate This table details a tax bracket for long-term capital gains As you can see the long-term rate is much lower and rewards investors if they hold Continuously for all for a year or more so now If you're single up to forty thousand dollars Well under forty thousand dollars, you're at zero percent at forty thousand and above you're at fifteen percent and At all the way up to four hundred and forty one thousand. So it pays To hold you guys get you guys got that it literally pays to hodl Mining cryptocurrency if you mine cryptocurrency you will incur two separate taxable events The first is as income from the USD value of the coins you mine and the second is for the capital gain or loss You incur when you sell or trade your mind coins You report this income differently depending on whether or not you mind the crypto as a hobby or as a business entity Crypto loans margin trading and DeFi Cryptocurrency lending platforms and other DeFi services have exploded in popularity with the crypto landscape Receiving interest income from a crypto loan or similar service is treated as a form of taxable income Similar to mining or staking rewards This type of income should be reported under the other income section of line 21 of schedule one Additional income and adjustments to income as part of your income tax return All right, why can't my cryptocurrency exchanges provide me with accurate tax report? That's what we're all asking right? This is where the problem exists Because users are constantly transferring crypto into and out of exchanges the exchange has no way of knowing How when where or at what cost basis you originally acquired your crypto currencies It only sees that they appear in your account the second you transfer crypto into or out of an exchange That exchange it loses the ability to give you an accurate report detailing the cost of basis and Fair market value of your crypto currencies both of which are mandatory components for tax reporting As you see here coinbase themselves Explains to their users how their generated tax reports won't be accurate if any of the below scenarios took place This affects over two-thirds of coinbase users which amounts to millions of people So just look at this heads up our gain loss calculator won't be accurate if you have And I'll read it to you guys bought or sold digital assets on another exchange sent or received digital assets from a non-coinbase wallet sent or received digital assets from another exchange including Coinbase Pro Stored digital assets on an external storage device Participated in an ICO or previously used a method other than first in first out to determine your gains losses on digital asset Investments, so that's why it's impossible for the for the exchanges to be able to provide you with that information Another side effect of the cryptocurrency tax problem is that cryptocurrency exchanges Struggle to give accurate and useful 1099s to their users 1099s of all types serve the same general purpose to provide information into the IRS About certain types of income from non-employment related sources many exchanges have decided to issue 1099k Because the industry leader coinbase issues this form to users who meet certain thresholds Unfortunately, this form is completely useless for taxpayers who are trying to report their cryptocurrency gains and losses now That we've spoken about all the problems that there is with taxing and with tax Let's talk about the solutions in the different ways we can we can resolve this issue The solution to the cryptocurrency tax problem hinges on Aggregating all of your cryptocurrency data making up your buys sells trades air drops forks Minecoins exchanges swaps and receives cryptocurrencies into one platform so that you can build out an accurate tax profile containing unnecessary data Once all of your transactional data is in one place then you can start the process of reporting each Transaction in the associated gains and losses for tax purposes Of course, you can do this by hand, but you can also use a crypto tax calculator or software solution to automate the entire process Crypto tax software So I'm gonna introduce you guys to the crypto tax software that I'm using personally So it's up to you guys if you want to use this one Or if you want to do your own research and go and look for a different one that is all up to you guys I'm telling you which one I use and then you do with that what you like if you do decide to use this one I am putting a referral link in the description That you guys can use if you like You don't have to it's up to you, but it does support the channel So if you do use it, I would I appreciate it if not is not a big deal. I still love you So Crypto tax software crypto trader tax is Software built for cryptocurrency traders to solve the tax reporting problem It allows cryptocurrency users to aggregate all of their historical trading data by Integrating their exchanges and making it easy to bring everything into one platform Once the historical data is in the system the tax engine Auto generates all of the necessary tax reports for crypto currency traders to file like the 89 49 in Addition to the do-it-yourself tool crypto trader tax also offers a Complete tax professional software suite for tax pros and accountants with crypto currency clients So if you're a you know an accountant or some sort of tax pro You can also use this software for your clients Today thousands of crypto investors in tax professional Professionals use crypto trader dot tax to securely and automatically build out the required crypto currency tax reports Users can take these generated reports to their own tax professionals or they can simply upload them into tax software like turbo tax What about other countries? I'm sure a lot of you are wondering Similar to the US countries all over the world have started taking action and enforcing cryptocurrency capital gains and losses taxes This trend will only increase as the asset continues to become more and more popular While while the tax rules are very similar to the US small differences do exist for more detailed information You can check out the complete guides for Canada Australia and UK at crypto trader dot tax link In our district description What happens if I don't pay my crypto taxes? I know a lot of you are asking that as well This is something that I wondered as well A lot of traders are convinced that because of the anonymous decentralized nature of blockchain and crypto Transactions that there is no way for the government to see or know that they are making money creating buying selling crypto currencies This is not true. While the IRS has been slow to the to this point when it comes to dealing with crypto taxes They are ramping up the IRS win against Coinbase Which required the popular exchange to turn over records for individuals who have $20,000 or more in any transaction by sell or receive is the beginning the blockchain is a Distributed block public ledger meaning anyone can view the ledger at any time Figuring out an individual's activity on that ledger essentially comes down to associating a wallet address with a name Choosing not to report your crypto transactions is a risky decision that exposes you to tax fraud To which the IRS can enforce a number of penalties including criminal prosecution Five years in prison along with a fine of up to $250,000 and here you see the IRS and the CPA and everybody breaking into your house with a gun Guys that wraps it up, man. I hope you got the information you were looking for from this It took a little bit to put it together It took six hours on Another editing on another software that I ended up just throwing away and then just coming back to Sweet old PowerPoint, which I am Love dearly, and I'm just comfortable with and that's pretty much it guys It's all I got for you today. If you guys have any questions, drop it below I should do a question of the day on this video. I'm gonna be honest. I have not wrote it Um, so I will write it right here live with you guys So for the question of the day as you guys know every video we have a random question about something in the video The question will always be in a random area of the video find a question and find the answer in the video Post your answer in the comments for a chance to win a free months membership to our trading Winners will be picked randomly once the video receives over 30 likes Good luck guys. So for the question of the day Um, let's let's come up with it. Let's come up with it Um Let's see about something that we went over Let's do Uh, all right. So let's do how we're so it's gonna be how how do you determine your cost basis? How do how do you calculate your cost basis? So basically what's the uh Formula how do you calculate cost basis? What is the formula? boom There you go guys That is the question of the day. Thank you guys for tuning in. I appreciate you guys as always. Sorry for the late video today um That's it guys. I'm out peace and love As always guys have a good one