🎧 Round Table Recap: Decoding Crypto Taxes - Expert Advice Inside!
Danny - Koinly
Danny, the head of tax at Koinly, shares insights on crypto tax space, international tax background, and how to explore the nature of crypto tax during the current market cycle. Discover the common questions asked and get advice on how to do crypto taxes like a pro.
You can also give this episode a listen here
• Kadeem @Crypto_Clarke - Host
• Danny at @koinly - Guest
This Round Table discussion was held on 10th Mar 2023
• Danny from Koinly is the head of tax at the company
• He’s got an international tax background working in the UK and Australia.
• Danny joined Koinly 10 months ago.
• Koinly is a software platform that automates your crypto taxes, reporting around it, and tracking your portfolio.
• Danny mentions how even as a user having multiple wallets in exchanges, you can be hooked up through an API where a clean dashboard is presented to the user.
• Danny explains he’s been following the global crypto tax space for a while, and tax authorities are still yet to catch up.
• He says that the different approaches from various countries make it confusing for investors and states there are still questions on how the significantly larger crypto transactions are taxed.
What bought you into taxes and crypto?
• In terms of taxes, Danny fell into taxes after doing his economics degree.
• Having aspirations to build a stable career, he worked in many multinational countries throughout his career.
• Danny got into crypto in the last 2-3 years, seeing the vast opportunity in the underlying technology and the borderless factor as a huge advantage.
Current news and the impact on crypto taxes
• Danny explains that immediate impacts in law changes won’t affect users in 2023.
• He brings up the point of wash sales. This is when you have an asset at a loss, and the wash sale rules prevent you from claiming a capital loss when you sell and re-purchase the asset very quickly.
• Danny says the rule is prescriptive in the US to securities, and because crypto has not yet been classified, the wash sale rule doesn’t apply.
• He emphasizes that the system works on a realization process meaning you have to un-realize your position before getting it taxed.
• Biden's stance is to put crypto within this category and align crypto with the similar classifications of security
• Danny explains how the current market cycle with users being in a loss enables investors to explore the ability of crypto taxes.
• Danny talks about the proposed double capital gains rate for long-term positions. If you make a gain, people must class their capital gains into short- and long-term gains.
🎧️ Listen to the audio from this section:
What are the most common questions you get about crypto taxes?
• Danny mentions the most obvious: "When do you have to pay crypto tax?”
• He says most people realize crypto is taxable but need clarification about when these are due.
• Additionally, he mentions transferring BTC to ETH or from another asset to FIAT is something that the user must note regarding gain or loss.
• The other way to dispose of crypto for tax purposes is by spending it. Danny mentions cards that can be linked to your crypto balance.
• Additionally, earning crypto through yields such as staking or mining. Danny explains that these are seen as income to the government, which will look to tax you.
🎧️ Listen to an audio clip :
For people earning income in crypto, how does taxation work?
• Danny notes that you must understand whether you operate a business or an individual investor.
• Having a full-time job outside of crypto applies differently to someone specifically running their business in crypto.
• When you start earning rewards, you require a mechanism to track this because understanding the value is essential, especially if you’re earning in a volatile asset.
• Danny says you must declare these in your tax returns, reporting each as an investor.
• If your underlying asset is sold, working out if you’ve made a gain or loss is most important.
🎧️ Here’s an audio clip from this section -
Are tax authorities becoming more accepting of taking crypto as payment?
• Danny says not quite yet and that it’s still very fiat based.
• He says having cash on the side to pay for your tax bill is essential.
• He mentions how the IRS is cracking down on crypto assets and that a lot of this has to do with criminal investigations within the IRS and how people have undisclosed gains.
Difference between selling and gifting crypto?
• Danny reiterates that a sale is: crypto to crypto, crypto to fiat, and spending crypto.
• He talks about how the gifting rules in crypto are separate from capital gains and income tax.
• He says you may get some tax relief when gifting crypto and need a qualified appraisal to make your gift tax-exempt.
• When trading crypto, any exchange you trade coins on is a taxable event, and the user must declare if they have made a gain or a loss.
🎧️ Listen to the discussion on selling vs gifting crypto, and on gifting rules :
Advice for everyone for doing crypto taxes
• Danny says to keep solid records of all transactions, and using software like Koinly can help. Additionally, downloaded CSV files from exchanges.
• He utilizes FTX as an example where transaction records could get your money back in a similar doom and gloom situation