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Ultimate Crypto Tax Guide (Do This BEFORE Filing) - YouTube
Channel: Max Maher
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doing taxes on your crypto gains can be
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a nightmare because of the volatility of
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coins tokens and nfts tracking your
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real-world capital gains can get messy
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pretty quick and since crypto is a
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relatively new way of investing many
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investors will try to fly under the
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government's radar but i'm here to say
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that this isn't the smartest move
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failing to report your capital gains
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from crypto correctly could land you
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with significant fines and set you back
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far more money than you made in profit i
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declare
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bankruptcy but i want to make things
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simpler for you this is the best guide
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on the internet on how to account for
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your crypto
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[Music]
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because if you get this right you may
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even be able to save money on your tax
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obligations now to start this off i want
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to remind you that i'm not a financial
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advisor always consult with a
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professional before doing anything crazy
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now i get asked a lot if people really
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need to pay taxes on their crypto trades
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the short answer is yes the irs seems to
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have systems already in place to gather
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information from undisclosed sources
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about who might have earned income from
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investments in digital currencies in
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2019 they sent letters to 10 000
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individuals letting them know hey buddy
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you may have forgotten to pay your taxes
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on your crypto and they won't stop there
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with taxes on crypto formalized in the
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infrastructure investment and jobs act
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it's not going to get any more lenient
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the good news is that there are just a
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handful of situations in which you have
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to include your crypto activities in
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your tax report and i'm going to cover
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as many as i can in this video and give
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you a free guide as well so to keep
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things simple there are three big events
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that you should see as taxable the first
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is selling your crypto assets within one
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year is it because the government sees
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cryptocurrencies as property any income
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you make in the sale of coins or tokens
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is a taxable event if you hold onto the
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coin for over one year before selling
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this is considered a long-term capital
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gains tax what you end up paying depends
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on the tax bracket that you fall under
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this chart from investopedia sums it up
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pretty nicely you'll notice that if you
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fall under the first pillar you'll
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basically not have to pay anything on
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capital gains but again that's only if
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you're writing your positions long term
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more than one year if you're single or
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you're filing your taxes as an
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individual you can earn up to forty
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thousand four hundred dollars in gains
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without having to pay taxes on those
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gains also the limit on tax-free gains
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goes up if you're the head of household
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or if you file with a spouse so there
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may be some tax advantages there to
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getting married what a luxury
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you know now let's compare that with
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short-term capital gains tax using this
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graph from the irs income on crypto
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trading that comes from selling your
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holdings that are less than one year old
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get taxed just like ordinary income so
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right away looking at this 2021 federal
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tax rates actually start at 10 even if
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you earn just one dollar this year
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that's not including tax credits of
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course and note the numbers from this
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chart represent your total income not
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just the income you made from buying and
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selling crypto if you made that same
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fifty thousand dollars this year with
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ten thousand dollars in gains as a
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single filer for short-term capital
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gains tax you'd pay 22 compared to 15 if
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that's long-term capital gains so it
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pays to hold long-term if possible
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another issue comes up when you use your
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crypto to pay for goods and services
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this is because spending an asset like
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ethereum or bitcoin works the same way
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tax wise as selling that asset
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unfortunately and if you are paid in
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cryptocurrency as part of your income or
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salary you'll be taxed on this based on
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the price of the crypto on the date in
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which you were paid meaning if the value
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goes up by the time you sell or spend
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unfortunately you have to pay tax on
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those gains and this is at least until
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more governments recognize crypto as
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actual federal currencies if you were
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paid in crypto or use crypto to buy
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things you'll want to keep track of the
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date amount and price of the cryptos
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when you both receive them and spend
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them for proper tax accounting but don't
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worry later in this video i'll have an
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easier way to keep track of all that the
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next part is figuring out the taxes
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you'd have to pay every time you spend
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or sell this is typically done with the
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fifo first in first out method basically
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the crypto you receive first is the
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first to be considered spent or sold now
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it is possible to use lifo last in first
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out to save some tax but you want to be
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careful with this and consult with an
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accountant if you want to take that
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method going back to being paid in
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crypto if you're converting your crypto
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to cash on the spot right when you get
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paid then this is as straightforward as
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counting up the amount in us dollars and
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listing this in your tax report as
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ordinary income cash there is no
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conversion there's no capital gains on
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that but if you hold your crypto any
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amount of time before selling it or
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spending it this is when you need to
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report that change in the price of the
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asset as unfortunate capital gains now
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the third category is exchanging your
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coins for other crypto some people many
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people mistakenly assume that swapping
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one crypto for another is considered a
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buy and therefore assume that this isn't
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a taxable event just like buying bitcoin
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with us dollars but unfortunately that
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is not the case if you buy doge with
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bitcoin you're gonna have to pay tax on
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your bitcoin gains i know it's
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unfortunate remember that crypto is not
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yet considered a currency by the us
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government or most governments so they
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don't see this as a regular buy they see
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this as trading one property for another
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so let's do an example here to help
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guide us i've created a crypto gains and
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profit calculator did i spend literally
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15 hours making this calculator work
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properly because i thought it'd be a
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good idea for the video unfortunately
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yes do you get it for free without even
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giving me your email address also yes
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i'll ask for a subscribe and watch
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through to the end of this video to the
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example you bought 1 dollars in ada in
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october a month later you decide that
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you really want to buy a solana piranha
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nft who can blame you so you go to the
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pre-launch sale and find out that one ft
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costs 1.5 sold to buy this you're going
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to go ahead and just exchange all of
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that ada for seoul and this is your
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first tax blog bent your ada has gone up
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from two dollars and five cents when you
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bought it to two dollars and thirty
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cents according to our calculator you
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have a realized gain of
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121.95 that's the gain that you'd have
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to pay tax on and this is because in the
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eyes of our tax overlords you have sold
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your ada and bought soul you need to pay
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your tax now here's the crazy part
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you're going to have to repeat that
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process again when you exchange your
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solana for your fancy new piranha nft if
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your solana goes up in value
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significantly you should probably track
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this however to be honest you shouldn't
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consider the end of the world if your
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position shifts a few cents between that
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exchange and buying the nft of course
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none of that is financial advice now the
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nft itself also counts as property but
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as long as you don't sell it within one
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year you don't have to count that
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appreciation as ordinary income now
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something else that is taxable but free
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money is using that link in the
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description for block five with block fi
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you can earn interest on your cryptos
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and get up to 250 in free bitcoin by
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making an account but remember to pay
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your taxes now what about losses if you
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go through with any of these activities
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and you find that upon some kind of sale
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or exchange of your asset you've
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incurred a loss in the value of your
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crypto this counts as a capital loss
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it's important to report your losses as
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well because you can actually use this
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to offset your taxable income here's an
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example you bought a stock and it
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increased in value by 500
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congratulations we'll say it's taxed at
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10
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or 50 in total tax within the year but
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you also bought and closed a position on
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a crypto in the same year that lost 50
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you could write off that fifty dollar
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tax by filing the loss alongside your
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stock portfolio gains based on irs
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guidance you can actually write off up
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to three thousand dollars in capital
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losses if you're filing as an individual
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this can be strategic for you it means
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that you could technically call your
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first three thousand dollars in yolos
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per year a tax write-off
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not financial advice so we we've so far
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covered the basics these three examples
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of taxable events just about summarize
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how the irs currently views some common
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transactions in crypto but there's still
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some questions that the government
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hasn't answered for example in d5
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activities like staking and yield
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farming tend to vary in their mechanics
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based on the dap that you use this makes
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it hard to pin down if your earnings
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should be taxed like ordinary income
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capital gains or non-taxable exchanges
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of assets now let's break this down your
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earnings in defy are considered ordinary
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income when you decide to use your
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tokens in order to receive more tokens
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so take an example of staking cardano to
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earn more ada in exchange for validating
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transactions because you receive more
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ada for doing this it works just like
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our previous example of getting paid a
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salary in bitcoin the same applies for
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mining on a proof of work blockchain
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this is all ordinary income also if you
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do have cardano you should consider
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staking it in my stake pool ticker
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symbol max one you'll earn around five
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percent interest annually on your ada
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and five percent of the revenue that we
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make goes to the organization for autism
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research so it's a pretty cool pool but
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it gets a little tricky when you instead
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lend your crypto to a lending platform
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like ave or compound these platforms
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have an additional layer of complexity
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because of liquidity pool tokens or lpts
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when you lend eth on compound to
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contribute to their liquidity pool you
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get a c
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in exchange a sort of receipt for the
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amount that you invested the thing here
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is the irs has not yet decided whether
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that counts as an exchange and therefore
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we don't know whether that's a taxable
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event breaking this down your c token
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may increase in value over time and if
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and when you decide to take your share
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of eth out of the pool this then becomes
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a capital gain you need to account for
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both the price changes in each itself
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and the increase to your eth stockpile
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through lending it because you get paid
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back in eth and then you need to
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indicate in your filing if your profit
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or loss is short term or long term
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because that affects how your income is
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taxed if you held your ce for more than
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a year it could be considered under that
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zero percent tax bracket of capital
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gains so long as you don't hit the other
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income limits also a note here for
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regular crypto lending like stable coin
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lending this is considered ordinary
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income on your taxes which is a little
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bit more simple to calculate now that
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was one example other d5 platforms may
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have different mechanics on how they
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work different kinds of tokens and
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different rules but when you can enter
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or exit a liquidity pool it's important
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to understand this before you go into
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yield farming or liquidity staking
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because it can affect your taxes some
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traders trade across several exchanges
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within a day sometimes facilitated by
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bots typically bots are used either for
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arbitrage opportunities or automated
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trading in crypto this is where there's
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a bit of a gray area i've yet to find
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anything explicitly in writing how this
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is taxed however it's safe to assume the
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worst here and consider that these gains
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are short-term capital gains because the
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trades happen on a daily basis so that
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would make the most sense now if you're
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a professional trader you may be able to
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write off some of your incurred taxes by
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citing business expenses in your tax
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return you can cite utility expenses and
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basically any other reasonable expense
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that's necessary to run your business
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deduct those expenses from your total
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crypto income pre-tax and then you only
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get taxed on the remaining profit it's a
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business so if a large chunk of your
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time is going into regular trading
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activities i would recommend looking at
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registering yourself as a business but
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make sure you consult with a tax
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professional because this is only going
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to work for full-time people who are
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willing to pay extra in accounting and
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make sure that this is done correctly
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just make sure you do it correctly if
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that's an option for you also if you
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happen to be someone who is worried
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about your crypto tax bill i recommend
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either tracking things manually just to
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get your mind off this use that free
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resource in the description if you want
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or you can use an integrated accounting
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app like token tax or coin tracker these
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services range in price depending on the
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number of transactions that you make per
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year but it typically costs you less
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than about ten dollars a month and
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another thing that you get a ton of
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value for for only ten dollars a month
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is my patreon there you'll find
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additional content my buy and sell
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alerts that are up more than one hundred
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thousand dollars this year a private
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investor community coaching and a whole
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lot more i look forward to seeing you
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over there so i'd like to thank you so
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much for watching and i hope you have a
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profitable day
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