CRYPTO TAX AMA |Alexandria Goldsmith

Feb 13

AMA Writeup:

We hosted an instagram live ama - here is our wrap up of the key points we learned.

Featuring:

Alexandria Goldsmith
Owner of Wild Thing Tax, CPA MST
Located in Indiana, WIld Thing Tax serves Taxpayers all over the country including Puerto Rico.
WIld Thing’s Mission: Empowering Taxpayers and Caring for Clients

Alex is busy living her mission every day, helping under representative individuals in her community to have access to a tax professional.

WIld Thing Tax stepped into the crypto tax arena last year when Alex realized there was a gap. They were excited to step up and provide services in a space where traditional CPAs are resistant and unwilling to help.

Bee Davies
CMO OF NFT GG

Lets begin!

Bee and Alex kick it off with a common, entrepreneur question from our friend the Blockchain Broker.

Should I incorporate my crypto company in Puerto Rico?

“The corporation process is just a function of the state or province that you’re in…”

“From an IRS perspective they don't care where you’re incorporated. For example, a lot of C-corps chose specific states with laws that are beneficial for C-corps.”

“If by incorporate you mean… create a C-corp or create an LLC those are two completely different things. If you're going to create an LLC then.. you can do it in whatever state you live in, or have someone who will be a registered agent for you with a physical presence in the state….”

Then Alex hits us with a plot twist… … if you’re really asking..

Will creating or setting-up a business in Puerto Rico create a tax haven for income earned by that business…?

Short answer: No. Income tax is based on the location of the lucky, final recipient. We’re subject to the tax laws of our residences, Baddies.

“if you’re living in Indiana but your company is registered in PR, you are the ultimate recipient of that income and you’re in the continental US you ARE NOT subject to the Puerto Rico Act 60.”

Moving onto the next Tax question with Bee & Alex regarding AGI…

What is AGI and why is it important for those filing crypto taxes?

AGI (adjusted gross income) your income before standard or itemized deduction = (taxable income)

This is important to EVERYONE, who files taxes. Not just crypto Baddies.

“AGI is important because certain tax credits and other tax benefits point back to AGI as a starting point. Capital gain tax rates differ between what bucket you fall into for long-term capital gain rates.”

Everyone's favorite - capital gains!

Taxable income in terms of long term vs short term capital gains rates.

Short Term Capital Gains is the disposition on assets you’ve held less than a year - qualifies as “ordinary income”
- Taxed just like regular wages would be taxed
Long Term Capital Gains is something you’ve held longer than one year
- Subject to long term capital gains! Instead of being subject to ordinary income rates - instead its falling under long term capital gains rate can be 0% up to 40,000 depending on your bracket.

FUN FACT *** “It could be 0%, depending on how you file your taxes, whether as single, married, head of household, all have different rates, but it could be 0% for up to 40k of taxable income for the year. So if your total taxable income for the year is under 40k, you would pay 0% for any long term capital gains in that year.

Now… Back to crypto specific talk..

What happens if someone airdrops you an NFT?
+ How to calculate basis on NFT Drops?
+ Do you end up having to pay taxes on it?

For all of us NFT and web3 conference baddies… you know the drill. In this industry, you better show up to the events with various (or specific) wallets ready and a well-charged phone (or charger.
“Basis is essentially what you bought something for. If you buy a coin for 100$ and you sell it for more, then your gain is the difference between what you sold it for and what you paid for it..”

How do you calculate a gain if it didn’t cost you anything to buy?

If it's considered a gift, you wouldn’t have to pick up income… but let's say you wanted to….

“The first, is to establish a basis: you do that by…. picking up FMV of item THE MOMENT received (you pick-up income, pay income tax - now your basis on the airdrop is whatever the FMV the moment you receive it. If you don't do that… you have no basis.”

What if I want to sell it later and the token goes up? (50$ gains)

If you don't establish basis when you buy it (basis is 0) and sold it for 50 your gain is 50
If you establish basis (recognize as income) on the 10$ you picked it up for, then you only have 40 of gain

What is schedule C and how do we maximize expenses to reduce tax liability? (8:50)

“Schedule C is a business tax return if you’re running a business but don’t have a separate business entity… Your schedule C is filed with your 1040 your big personal return everyone does every April 15th”

Net Income & Net Loss. On a Schedule C you’re picking up income and you have expenses.

…. Net income is subject to income tax AND self employment tax… (Which is 15.3%)

Not so Fun Fact… Self employment tax CAN NOT BE wiped out by standard deduction (even with an LLC you still have self employment tax ** Something to think about)”

When you’re selling NFT’s ––––– income that you will report is… whatever the proceeds are at the time of sale, no matter how that income comes into you..

“So if you take ETH from your customers, it doesn’t matter what you do with it, even if the $ still sits in your wallet you are subject to the income tax of the USD it was worth the moment you receive it. So you slap that on line one of the Schedule C..”

And if you’re a smart Baddie… offset the income with our other expenses…

Other expenses include everything to do with your business = deductible

…Computer, server space, home office, adobe subscriptions… etc

Even gas fees and other expenses that have to do with creating, selling, educating and marketing your content.

BADDIE TIP – Dining in ‘22 will be %100 deductible. “Go on all the dinners!” - this is also true for 21, so if you’re tracking expenses for 2021 tax return prep, be sure to classify dinners at restaurants as 100% deductible

WRITING OFF GAS FEES.. bottom line is, yes you can. Let’s clarify GFs!

We can do this 1 of 2 ways, Baddies...

Take it as an expense to reduce your income on Schedule C, equivalent to credit card processing fees. Gas fees = eBay fees when it comes to deductions.
1. Biggest benefit to taking Gas fees as an expense on Sch C is that they will reduce your Net Income and therefore save you not only Income Tax but also Self Employment Tax
Or increase your basis by them… lol

Crypto Activity Tracking Softwares (14:14)

The bountiful benefits of using these apps are the tax reports they generate with info your CPA needs.. For instance, long term gains/losses, short term gains/losses, yield farming interest.

Here are the two Alex recommends…

Coin Tracking.io - more in depth, less user friendly
Koinly - more basic activity, simple features, easy user interface

What’s your advice on how we can best prepare our crypto taxes for our accountant? (16:50)

For the creative Baddie creating & selling NFTs. (this is easy peasy)

Pull Transaction Data directly from wallet addresses (looks at raw data)
Create A Sales Report that keeps track of THIS data:
- Transaction date
- How much / coin amount
- Value in currency (USD) at that date/time
Do the Math. Tell your accountant = This is my revenue in USD

FUN FACT: Mining is reported similar to nft creation and sales

For the degen BADDIE with a lot of transactions….

“You should probably use a tax person if you have a lot of transactions, or use these tools for yourself with a tool like Koinly because the likelihood that the general public has access to a crypto person, who knows hows these systems work and can identify the issues within them, is not very high.”

If an individual receives a token for a 100% of their income/salary, and the value of the token appreciates from when it was earned, and the individual sells that token, how do you determine the taxable income amount?

Your employer needs to determine the USD value of the currency at the exact time & date they paid you and to add to your W2.

If you’re a contractor then that's on you. LUCKILY, we outlined how to do that earlier, so you’re in good hands here!! You know exactly how to determine the value history, based on the USD on that date… you BADDIE, you.

Baddies… Bottom line to understand…

Crypto wages will be stated on your W2 in the USD amount the currency was worth when you received it - looking back, the basis is what you were paid (and paying income tax on) then when you turn around and sell it for more, because you’re a baddie, you’re going to pay capital gains tax.. (FUN).

What is the benefit of forming an LLC when it comes to doing taxes?

For Federal taxes, there isn’t really one (because of disregarded entity as mentioned earlier)

“In regards to legal benefits limited liability provides…

The only protection you have is if there is a debt in the name of the company. (Taking a credit card out or something - if biz defaults bank can’t come after traditional assets)

*** This is for not Difi - this is a centralized banking strategy. But getting your EIN has nothing to do with those things..”

Benefits of EIN requests W9, or wants to pay you, KYC you could use EIN instead of SSN in your company.

DAOs – Decentralized Autonomous Organizations

A DAO is a place where multiple people are putting funds into a reserve (mutual fund) to produce projects. The reserve can go up and down overtime.
Similar to a standard investment.

How else can we prepare for tax season, to make our CPA lives easier?

Schedule an apt for your CPA and prepare them when you're in crypto. They may require specific reports
Have an idea of your overall gains and losses
Scroll through wallets, exchanges and activity
Get Koinly if you can’t determine what all has transpired

Can we file traditional and crypto taxes separately?

No everything is going on to the 1040

“I have clients like this - I help friends with crypto, figure out the gains, then generate the report, and give it to their CPA”

Can I live in Florida and file taxes with you?

“YES, I serve people from all over!”