1/26 THE EPIC TAX GUIDE THREAD
From my upcoming free guide—Understanding Nodes
This is largely based on @koinly's Ultimate US Tax Guide (& other sources)
I was just going to include this section in my guide but it's SO topical, I felt compelled to post it now.
Please RT! 🧵👇
From my upcoming free guide—Understanding Nodes
This is largely based on @koinly's Ultimate US Tax Guide (& other sources)
I was just going to include this section in my guide but it's SO topical, I felt compelled to post it now.
Please RT! 🧵👇
2/26 I had to do research on crypto taxes for myself anyway because I've never truly understood taxes. So I went full on Attack Dog Mode.
FWIW—I'm *not* a CPA so none of this should be considered as financial advice. I did my best, but speak up if you spot errors. Please!
FWIW—I'm *not* a CPA so none of this should be considered as financial advice. I did my best, but speak up if you spot errors. Please!
3/26 TL;DR, part 1:
Taxable:
• Airdrops
• Node rewards
• Crypto-to-crypto swaps
Deductible:
• Gas fees
• Node purchases (expense on Sch. C)
Use carryover losses & deductions to offset gains—indefinitely!
DAOs: no guidance from IRS—Texas Tezos legal case is still pending.
Taxable:
• Airdrops
• Node rewards
• Crypto-to-crypto swaps
Deductible:
• Gas fees
• Node purchases (expense on Sch. C)
Use carryover losses & deductions to offset gains—indefinitely!
DAOs: no guidance from IRS—Texas Tezos legal case is still pending.
4/26 TL;DR, part 2:
CAP GAINS FOR INCOME BRACKETS.
Single & <40K income (including crypto gains)? Don’t worry about cap gains.
Single & 200K income or married & 250K income (including crypto gains)? You'll likely have to ALSO pay the 3.8% Medicare ACA fee, too.
CAP GAINS FOR INCOME BRACKETS.
Single & <40K income (including crypto gains)? Don’t worry about cap gains.
Single & 200K income or married & 250K income (including crypto gains)? You'll likely have to ALSO pay the 3.8% Medicare ACA fee, too.
5/26 NO TAXES ON CRYPTO.
• Buying crypto with fiat currency
• Holding crypto long-term
• Moving crypto between your own wallets (including CEXes).
• Gifting crypto under 15K in value (16K in 2022)
• Donating crypto to a charity
• Creating an NFT
• Buying crypto with fiat currency
• Holding crypto long-term
• Moving crypto between your own wallets (including CEXes).
• Gifting crypto under 15K in value (16K in 2022)
• Donating crypto to a charity
• Creating an NFT
6/26 THE TAKE HOME.
If you *earn* crypto—eg, claiming node rewards—you pay INCOME tax.
If you *dispose* of crypto—eg, creating nodes—you pay CAPITAL GAINS tax.
BUT
If you buy a NODE with crypto, it can ALSO be an expense on Sch C.
(That last line is the whole ball game.)
If you *earn* crypto—eg, claiming node rewards—you pay INCOME tax.
If you *dispose* of crypto—eg, creating nodes—you pay CAPITAL GAINS tax.
BUT
If you buy a NODE with crypto, it can ALSO be an expense on Sch C.
(That last line is the whole ball game.)
7/26 CAPITAL GAINS—THE THREE S's.
Capital gains are triggered by basically 3 things:
• SELLING (for fiat)
• SWAPPING (for crypto)
• SPENDING (to buy things)
(Yes, gifting is in there, too, but these 3 are the most obvious ones. And easier to remember!)
Capital gains are triggered by basically 3 things:
• SELLING (for fiat)
• SWAPPING (for crypto)
• SPENDING (to buy things)
(Yes, gifting is in there, too, but these 3 are the most obvious ones. And easier to remember!)
8/26 So, to sum up—
Buying: 🕺 Tax Free 🕺
Holding: 🕺 Tax Free 🕺
Selling: 🚨 Taxable 🚨
Swapping: 🚨 Taxable 🚨
Spending: 🚨 Taxable 🚨
Buying: 🕺 Tax Free 🕺
Holding: 🕺 Tax Free 🕺
Selling: 🚨 Taxable 🚨
Swapping: 🚨 Taxable 🚨
Spending: 🚨 Taxable 🚨
9/26 CAPITAL GAINS CALCULATION.
Cap Gains taxes are determined by:
1) how long you hold an an asset (a token, in this case), and;
2) how much you earn/(lose) between acquisition and disposal.
Capital gains are either short term (< 12 months) or long-term (> 12 months).
Cap Gains taxes are determined by:
1) how long you hold an an asset (a token, in this case), and;
2) how much you earn/(lose) between acquisition and disposal.
Capital gains are either short term (< 12 months) or long-term (> 12 months).
10/26 Capital gains taxes are based upon your federal income tax rate bracket, but short-term vs. long-term holds can make a BIG difference in taxes.
[In the guide, there is a table here listing all capital gains by income bracket, but this is easily found by googling it.]
[In the guide, there is a table here listing all capital gains by income bracket, but this is easily found by googling it.]
11/26 EXAMPLES.
Single + 40K annual income? Short term cap gains rate: 12%.
Married (filing jointly) + 100K income? Short term cap gains rate: 22%.
Long-term gains tax rates are only 15-20%, so it’s usually better to hold longer than 12 months. [more depth in the guide]
Single + 40K annual income? Short term cap gains rate: 12%.
Married (filing jointly) + 100K income? Short term cap gains rate: 22%.
Long-term gains tax rates are only 15-20%, so it’s usually better to hold longer than 12 months. [more depth in the guide]
12/26 BEWARE THE ACA INCOME TAX.
Gains are also considered investment income from the Medicare contributions tax in the ACA, so taxpayers with 200K+ in income (250K for married filing jointly) are subject to an additional 3.8% Medicare tax on crypto gains.
Gains are also considered investment income from the Medicare contributions tax in the ACA, so taxpayers with 200K+ in income (250K for married filing jointly) are subject to an additional 3.8% Medicare tax on crypto gains.
13/26 LOSSES.
If you have more losses than gains, you can offset up to $3000 of capital losses against non-crypto income.
AND you can even carry more losses forward—as long as you want—to offset future gains!
This is a *killer* strategy. Keep track of all your losses.
If you have more losses than gains, you can offset up to $3000 of capital losses against non-crypto income.
AND you can even carry more losses forward—as long as you want—to offset future gains!
This is a *killer* strategy. Keep track of all your losses.
14/26 SWAPPING.
If you swap ETH for STRONG, the IRS sees this not as one transaction, but two:
Part 1: You are *selling* ETH <— taxable
Part 2: You are *buying* STRONG <— not taxable
(But you must record how much you bought STRONG at... for when you sell it!)
If you swap ETH for STRONG, the IRS sees this not as one transaction, but two:
Part 1: You are *selling* ETH <— taxable
Part 2: You are *buying* STRONG <— not taxable
(But you must record how much you bought STRONG at... for when you sell it!)
15/26 GAS FEES.
Moving crypto between wallets costs gas. If you pay that gas in fiat currency, it’s tax free.
If you pay gas with crypto, it’s considering *disposing* of crypto, i.e., a “spend,” thus: a taxable event.
(@koinly has a useful "treat gas as disposals" feature.)
Moving crypto between wallets costs gas. If you pay that gas in fiat currency, it’s tax free.
If you pay gas with crypto, it’s considering *disposing* of crypto, i.e., a “spend,” thus: a taxable event.
(@koinly has a useful "treat gas as disposals" feature.)
16/26 LIQUIDITY POOLS.
Adding or removing liquidity into a protocol doesn’t appear to be taxable.
BUT if you are receiving a token in *exchange* for your share of the pool, that can be interpreted as a crypto-to-crypto swap and thus subject to capital gains tax.
Adding or removing liquidity into a protocol doesn’t appear to be taxable.
BUT if you are receiving a token in *exchange* for your share of the pool, that can be interpreted as a crypto-to-crypto swap and thus subject to capital gains tax.
17/26 AIRDROPS.
When you get “free” tokens, it's still considered income, subject to income tax at its *current* market value. Most of the time, that’s probably not much, right?
But if you sell those airdropped tokens for a profit, you also pay capital gains on that profit.
When you get “free” tokens, it's still considered income, subject to income tax at its *current* market value. Most of the time, that’s probably not much, right?
But if you sell those airdropped tokens for a profit, you also pay capital gains on that profit.
18/26 DAO INCOME.
The IRS hasn’t released official guidance on how staking rewards should be taxed.
But plaintiffs in a 2019 Texas court case want staking rewards considered as "the creation of new property subject to Capital gains tax on disposal." Case is still pending.
The IRS hasn’t released official guidance on how staking rewards should be taxed.
But plaintiffs in a 2019 Texas court case want staking rewards considered as "the creation of new property subject to Capital gains tax on disposal." Case is still pending.
19/26 CRYPTO TX LEDGER ENTRIES.
• Transaction Date
• Crypto FMV in $—date acquired & disposed
• Cap gain/loss of each transaction
• What the transaction was
• Parties involved
• Receipts of purchase & sale
• Records of transfers & transactions from wallets & exchanges
• Transaction Date
• Crypto FMV in $—date acquired & disposed
• Cap gain/loss of each transaction
• What the transaction was
• Parties involved
• Receipts of purchase & sale
• Records of transfers & transactions from wallets & exchanges
20/26 REPORTING CRYPTO ON TAXES.
There are two main docs the IRS wants regarding crypto:
Schedule D (1040) & Form 8949: Disposals, capital gains/loss
Schedule 1(1040) or Schedule C: Crypto Income
There are two main docs the IRS wants regarding crypto:
Schedule D (1040) & Form 8949: Disposals, capital gains/loss
Schedule 1(1040) or Schedule C: Crypto Income
21/26 CRYPTO HAS NO "WASH SALE" RULE.
The IRS classifies crypto like property—not like stocks—so you needn't wait 30 days to buy back crypto.
Savvy crypto investors sell crypto at a loss, then buy it back at a lower price for a tax deduction—it's called "tax loss harvesting."
The IRS classifies crypto like property—not like stocks—so you needn't wait 30 days to buy back crypto.
Savvy crypto investors sell crypto at a loss, then buy it back at a lower price for a tax deduction—it's called "tax loss harvesting."
22/26 AUDITING.
The IRS will likely only go after those with proceeds greater than $10 million.
The IRS will compare 1099-K from CEXes like Coinbase to your tax filing, then ask you about discrepancies with an automated letter.
Don't cheat—they'll catch you with Benford's Law!
The IRS will likely only go after those with proceeds greater than $10 million.
The IRS will compare 1099-K from CEXes like Coinbase to your tax filing, then ask you about discrepancies with an automated letter.
Don't cheat—they'll catch you with Benford's Law!
23/26 End of thread.
I literally would not have been able to do this without @koinly's excellent guide on crypto. They have guides for other countries, too.
I myself am paying to use Koinly but they did not pay me for this endorsement.
Because I don't do endorsements. :)
I literally would not have been able to do this without @koinly's excellent guide on crypto. They have guides for other countries, too.
I myself am paying to use Koinly but they did not pay me for this endorsement.
Because I don't do endorsements. :)
24/26 If you liked this, you'll love my complete guide on Understanding Nodes. It covers how to find node projects, how to invest in nodes, etc.
To get it:
1) go hunting for my email in my Twitter banner artwork, and
2) send me an email with "Node Guide" in the subject line.
To get it:
1) go hunting for my email in my Twitter banner artwork, and
2) send me an email with "Node Guide" in the subject line.
25/26 Also, PLEASE consider retweeting the first tweet to make the whole thread go viral. All U.S. cryptos could use this info, IMO.
If I got something wrong, please speak up! I'm just a guy trying to figure stuff out and I sometimes get it wrong. :)
If I got something wrong, please speak up! I'm just a guy trying to figure stuff out and I sometimes get it wrong. :)
26/26 Hey @threadreaderapp can you unroll this thread so people can read the whole thing without scrolling through tweets? Thanks!
• • •
Missing some Tweet in this thread? You can try to
force a refresh
