Ask David Spencer CPA Your Tax Questions

U.S. Taxation of Digital Assets
#1

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Important: Because of liability reasons, David cannot help with personal tax questions in the forum. If you need personal help - book consultation using the link above.

He may still be able to answer general questions.

We want to set the expectations straight for the forum section in this course and therefore we make it clear that you shouldn’t expect personal help here :pray:

Feel free to talk to @DKSCPA here but be prepared that he will refer to the consultations if questions become too specific or personal in nature.

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Staking rewards taxation
#2

Thank you for this opportunity.

I am curious if we need to keep track of every buy, sell and swap, or if there is a way to download all our transactions via one of our exchanges or an app.

I’m in the U.S. and I use TurboTax. I notice they have integrated something called bitcoin.tax. I didn’t bother with it this year because I didn’t sell anything in 2020 but going forward, I have been doing a lot of trading in 2021.

Is there a price under which the IRS doesn’t care? If I make a $50 transaction, is that of note? Please tell me we don’t have to manually record every transaction. :slightly_smiling_face:

Thank you very much!

Jill

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#3

Hi Jill. Great question. Unfortunately you do have to track every transaction. There are a number of services available. These do a good job calculating it for you. No surprise, the more trades, the more the service costs.

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#4

Hi @DKSCPA…

just wondering… what are the consultation charges ?

thanks
E

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#5

HI Emmett. The consultation is free. It gives us a chance to discuss your situation and see if my service is a fit. Maybe I know another pro in your area who can help as well! Looking forward to hearing from you!

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#6

ah ok cool… no doubt you will be absolutely swamped soon enough… this stuff is scary!

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#7

Fear not friend!! I’m here for you!!

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#8

Hi @DKSCPA .
Thank you for a good course.
This course has cleared better for me the fog on taxes for digital assets, though I’m actually not a Us tax-payer :grin:
But I can relate to these tax rules, which assets and incomes are taxable.

However, I do have few questions from this course that I would like to ask you about (aimed for US taxpayers).

  1. (From Slide 21)
    “Remove any addresses you own”
    Does it also apply to our addresses that belongs to a different Wallet?
    Should we always keep other people addresses on the record, which we have sent funds to?

  2. (From slide nr. 45)
    If the asset holder had also ETH in the portfolio from a buy in 2018, let say for 47 USD for same amount (0.25 ETH, less profit).
    Would the sale on 9/28/20 be referred to the basis from 2018 instead, where it is older one? Or would it be the same basis from 2019 where it is more profitable, than basis from 2018?

  3. Does the crypto holder have to pay taxes of his crypto asset if s/he only moves the “asset” to his/her other Wallet?

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#9

Re Digital Asset reporting…

ok starting to feel a bit more at ease with this… thanks David :slight_smile: , but I am still a bit confused

An example scenario…

  1. Assume I have a bunch of ETH in my account during the year. This might be eth that has gradually built up across many buys over the years.
  2. I use some of this ETH to buy some alt coin, lets say I buy Theta (with ETH) on some dex

So I calculate my basis in ETH at that moment in time which is the value in USD of the amount of ETH used? or how should I calculate ?

Does it matter if the ETH I am using has appreciated since I bought it ? and how would I calculate that

Assuming that I just hodl the Theta, am I liable for how much it gained over 2020 since the transaction ?

:confused:

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#10

It’s great to be here in this new course. Checking in from Florida. I will have questions as I get through the course. Thank you for doing this!

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#11

Great questions!
Yes, if you own a wallet and are just moving assets from one wallet to another you don’t have to pay any taxes. As long as you own the wallet then you won’t have to pay any tax.
The actual eth that someone uses to calcuate will depend on the method used by the taxpayer. Generally, you can use the FIFO method, the LIFO method or the specific ID method. That is a question to answer with you tax professional which method you would like to select.
No, if you are moving assets between your own wallet you don’t have to pay any taxes.
If you send money to someone else in the course of your business then you may want to keep a record. I can imagine that eventually the IRS will require that information. If you are just sending money to a friend then technically it would fall under the gift exemption until it gets to be about 14K or so. There are some nuances to this treatment though.
Thank you for the questions and the feedback on the course! It was a pleasure working with Ivan and the team.

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#12

Hey Dano! I am in Florida as well! Go Bucs!

#13

I will help with this one with the disclaimer that it is not tax advice just a general question.
No your basis is the amount you bought the ETH for originally.
So the question becomes which particular ETH did you sell?
You can use the LIFO method, which is Last in first out. so whatever your last ETH purchase was is your basis.
You can use FIFO method, which means that you are selling the first ETH that you bought and that is your basis.
Or you can use the specific identification method which means you can select the particular ETH that you want to sell. This requires very good record keeeping but can be done.

Basis is what I bought the asset for. It doesn’t change. What can change is which particular asset I am selling. Am I selling the last ETH I bought or the first ETH I bought or somewhere in between? That is the question.

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#14

Hi.
Thank you for your answers.

I would like to follow this up with a summary of the answers to the questions, just to see if I have understood it correctly.

  1. (From Slide 21)
    “Remove any addresses you own”
    Does it also apply to our addresses that belongs to a different Wallet?
    Should we always keep other people addresses on the record, which we have sent funds to?
  2. (From slide nr. 45)
    If the asset holder had also ETH in the portfolio from a buy in 2018, let say for 47 USD for same amount (0.25 ETH, less profit).
    Would the sale on 9/28/20 be referred to the basis from 2018 instead, where it is older one? Or would it be the same basis from 2019 where it is more profitable, than basis from 2018?
  3. Does the crypto holder have to pay taxes of his crypto asset if s/he only moves the “asset” to his/her other Wallet?

  1. Yes, It’s okey to remove your own wallet addresses from the record, but it’s recommended to keep the record about wallet addresses that you have sent value to, that doesn’t belong to you, where IRS may ask for these information?
    But what if you receive money from a friend under the gift exemption? Same when you send to a friend or are you gonna be taxed fully?

  2. "Technically", the crypto holder in the question scenario, could have chosen which ETH s/he put on the sell record for that tax year, by using ether FIFO method, LIFO method or ID method, with guidance of his/her tax professional?

  3. A crypto holder doesn’t have to pay taxes when s/he move money only between his/her own crypto wallets?


Thank you again for your answers.
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#15

I think you have it. If you receive money from a friend, it should receive the same tax treatment if you were transacting in cash. This question is getting a little dicey. lol.

Yes, tax payers can choose from the FIFO, LIFO and Specific ID method.

No tax to pay when you move money from one wallet you own to the other.

Disclaimer: Not tax advice. General guidance. Please contact your tax professional to address your particular situation.

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#16

Hello Mr. Spencer, first and foremost, amazing job so far (Currenlty on Defi income reporting).

My general question for you consists of 2 matters:

  1. (For defi income/Interest income) What are the implications of not attaching your organized CSV file to your tax return. And if an individual will use a self reporting software like tax slayer or TurboTax, how can one attach such a file to their tax return? (I assume one would need to reach out to the software company in question).

  2. (For DeFi capital gains or even Coinbase capital gains). Would it be necessary for one to attach their organized CSV files to their tax return (Assuming the tax payer calculated all their gains using either the LIFO, FIFO, SPEC ID method) Or will the IRS accept form 8949 with box C or F checked off since no DeFi app or Crypto exchange do not provide form 1099-B like in traditional finance).

I assume the IRS will contact you if it isn’t attached to your return because they will wonder where you came up with your numbers? or if you’re only trading off an exchange they will obtain those documents from the taxpayers exchange and match your 8949 to those transactions?

I hope these are valid general questions, and thank you very much.

Puhcheko

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#17

I will probably be in this forum often, I apologize ahead of time. :sweat_smile:

I was going over the quiz and the question stated:

If you receive an airdrop and what is your basis in the asset?

I have attached an image from an article stating that the basis is equal to FMV.

basis in asset
basis in asset792Ă—238 20.9 KB

Therefore I selected same as current price.

However, the answer was 0. Am I misunderstanding something here?

#18

Thank you so much for the feedback. It has been a pleasure meeting the community members. On the first point, the implication is that the IRS will or can request the information. Even for traditional financial investments, the schedule D attachment is required if you use the summary method I have detailed in the course. More information is available on the IRS website.
Generally, the way to avoid running afoul of the IRS is to give more information not less.
You are correct to say that the IRS will contact you requesting the detailed information on the summary form. That is a common practice for the service to reach out to request additional information.

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#19

This article is incorrect. More specifically they are not using the language correctly. The basis in an asset is what you paid for it. In an airdrop the basis in the asset is $0. That is what you paid for it. The Fair Market Value is the amount it is worth when it is received by you. If this were the case then no one would ever pay tax on an airdrop, because basis would be equal to FMV. This is a good example why professional assistance is important. This article is just wrong.

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#20

[quote=“DKSCPA, post:19, topic:31140”]
ause basis would be e
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You are definitely the experienced professional and I trust you more than an article however, and I do not mean to seem hard headed here, but whenever I don’t understand something, I go through all hurdles to try an understand it.

So, if I am understanding this correctly, and I’m sure many others would like clarity on this as well, one way to report the UNI airdrop is to report it on Schedule 8949 with a basis of 0 and when sold for ETH or Dai or any FIAT(USD) report a short term capital gain of whatever the FMV of the other asset in question received at the time of sale or trade was. Then you pay tax on the gain.

I apologize for my input here, but I thought the correct way was to record such an airdrop on a tax return was to record the FMV of the airdrop less any fees, at the time you received it on schedule 1, line 8 (other income) and then when you trade Uni for USD or ETH (if you dumped immediately) you have already paid tax on the airdrop and have 0 in gain/loss on 8949. Or if you decide to hold, you will sell at a later date and the cost basis is what you reported on schedule 1 line 8. Your gain is the net proceeds less whatever is reported on line 1 schedule 8.

The latter was the way I was going to report my UNI airdrop, I am now second guessing it :sweat_smile:

IRS income from airdrop
IRS income from airdrop1229Ă—1051 101 KB