On this episode, we’re taking the nightmare of reporting DeFi transactions for tax purposes. Coinledger makes it simple to track transaction, fees, airdrops, and even tax loss harvest. But we still have questions.
Guest: David Kemmerer, CEO & Co-Founder – CoinLedger
~This episode is sponsored by CoinLedger~
Use our Code for a Discount! “CRYPTOTAX10” ➜
00:00 Intro
01:02 Portfolio tracker
01:44 Integrations & NFTs
03:10 Staking
05:44 Airdrops
07:27 Swapping crypto-to-crypto
08:44 Service fees
11:15 Tax Guides
12:41 Bot trading
14:00 Coinbase vs CoinLedger
15:21 Wallet to wallet transactions
17:16 Audits
18:56 Long vs short-term investing
20:21 How do you treat businesses & LLCs
22:16 2024 IRS updates
25:22 Outro
#Crypto #bitcoin #Ethereum
~Crypto Tax Questions ANSWERED w/ Coinledger~
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Crypto taxes now is the time of year We're going to be diving into a little Bit about what that might mean for you When you're doing your own tax planning And tax prep it's going to be a good one This will get you guys ready to get into The season and also maybe ready for even Next year and planning even better so Make sure and stay tuned my name is Paul Baron welcome back into Tech path Joining me is David from coin Ledger and Uh David you've been here before so Welcome back yeah it's always good to be Uh with you guys thanks for having me Back and excited to talk taxes and Crypto it's kind of that time of year Again it is well coin a lot I know has Happened with coin Ledger over the last Year you guys went under you know kind Of the brand refit which has been great For you guys and then you've launched a Lot of new products and services we'll Show a little bit about that today and We're going to get in some really good Uh tax question questions when it comes To crypto so diving into all that Anything new over at coin Ledger that You can kind of chat with us About yeah I think the biggest thing is Kind of our push into the realtime Portfolio tracking space so you know Historically coin Ledger has been a tax Reporting first product and it still Will be but you know now we're rolling
Out this completely free portfolio Tracking product um that's going to Aid With the tax reporting so that'll be Live in the next few weeks if anyone Wants to be a beta tester for that you Know shoot me a note and we're we're Already in private beta with that Product but um outside of that Continuing to add Integrations make the Product simpler to use and you know make Crypto tax reporting just a lot simpler For folks in the Space very cool just to let everybody Know about Integrations if you go to Their website and you just click on that Integration tab up there at the top it's Going to break them all down for you I'm In the defi section right now so Obviously all within that some of our Favorites there fan pH openc base um Within defi I want to kind of start with That for a second Nfts and also we'll get into swaps as Well but I want to talk a little B about Nfts and how those are handled when You're selling an asset like that is it You know kind of give me an Understanding of what that might mean For someone who does have a large nft Wallet right now do you guys track all Of the different platforms out there for Nfts yep so in our in coin Ledger it Works very similar to other crypto Assets in that you know our Integrations
With ethereum blockchain coin you know Salana all Layer Two you know we'll pull In any nft assets that you hold in your Wallets and any transaction history that You've had with nfts and we'll calculate For you your gains losses and any income That you've incurred from your nft Transaction history um and so you know You can see these Integrations so if You've interacted with these protocols Coin Ledger is automatically doing kind Of the heavy lifting that number Crunching to actually calculate what Your gains and losses are which of Course is what you need to report on Your taxes sure all right so within that On um staking if you think about I'm Let's just say I'm holding salana I want To go over here and I'm running this Within a staking pool within the Phantom You know wallet that's a defi wallet I'm But I'm out there staking this how does That happen What type of am I taking gains at the Time in which those rewards are being Given to me what is the process there Yeah so first on the taxability side so Staking within crypto whenever you're Earning staking rewards right the amount Of token that hits your wallet as it Gets dripped to you now as everyone Knows there's different mechanisms for Staking but let's just simplify it right Let's say I'm getting one salana per day
I'm actually realizing what's known as Ordin Ary income at the fair market Value of that amount of salana each day It hits my wallet so let's say one Sal Salana is worth $90 I'm incurring $90 of Income per day if I'm getting one per Day and so you need to report that fair Market value in US dollar terms you know Throughout the year and so even if You're not Selling exactly that's one vales coming Over to you okay yeah for staking for Mining for if you earn crypto from like A job you're earning ordinary income That $90 for that one Soul becomes your Basis in the asset moving forward so you Okay you realize $90 of income on that Day and let's say you sell that one Salana a week later for $110 then you'll book $20 of capital Gain because it is increased in value What happens if the asset goes down so You realize let's say January first you Got one that one Soul which was let's Say 100 bucks um on January 10th I sell It and it's at $9 so I've taken a 10% Loss on that on that asset or or that You know that income what happens at That point is at the time in which the Uh transaction occurs or is it the time In which I report the transaction to the RS so supp to in that instance you would Report $100 of ordinary income and then You'd report a $10 Capital loss and so
Those would net out against each other And it and you incur $90 worth of income If that was your only transaction for The year all things sure yeah just Making it simple for people to Understand exactly on how to deal with This um let's get into air drops because Air drops is um this is huge now we've Got one of the biggest ones happening Matter of fact on the salana network Right now as jary is going out so Jupiter exchange is going to be doing a Lot of air drops but we've seen a ton Happen happen in 2023 as well how are Airdrops valued are they same kind of Scenario where you're taking that as Ordinary Income yes and this does vary country to Country and here in the United States it Is ordinary income at the fair market Value at the time it hits your wallet or At the time you have control over the Asset so exactly the same as staking Ordinary income and that becomes your Basis in the asset moving forward wow so I'm thinking I get a big Airdrop and it puts me over a tax Bracket because um let's say you're at The tax bracket window and you get an Airdrop which you don't control you just Get that it would potentially put you Into another tax category if you were Right at the bubble on wow that would be Interesting huh yeah and this is
Actually a good thing to know and where Some people can get into trouble as We've seen historically a lot of times Airdrop tokens Can you know drop in Value significantly and so you need to Be cognizant of how much income you Realized when you took ownership of the Airdrop because you face that tax bill Regardless of what happens in the asset Moving forward and so what I advise is Like you know make sure you have enough To at least cover that tax bill so maybe You want to sell a small portion um at That day to make sure you can cover the Tax bill because you know we have to pay Taxes in US Dollars and not the amount Of the asset that you incurred and so That's it's always a good practice yeah Let's talk about swaps because swaps are A thing now that we're starting to see a Lot more engagement on at least on our Channel a lot more people are now in Defi and I think in general if you look At what's happening within espe I I will Just say you know the Phantom wallet Probably is one of the most easiest Functions in terms of swap outside of Unis swap but how do you deal with uh Swaps right now from a standpoint of Taxes yes so similar to trades in that Anytime you're disposing of property in Cryptocurrency is classified as property You're incurring as we've mentioned a Gain or a loss on that property
Depending how it's fluctuated since you Originally acquired it right so when you Swap soul for another token it depends On how the value in that Soul has Fluctuated since you originally Purchased it um and so you need to track What's known as your basis which is the Original value of that asset and then Whatever you swapped it for at the time You swapped it that's its fair market Value and that difference between your Basis and the fair market value is the Amount of income you're realizing on That swap now again you can you can Calculate this stuff by hand or you can Use stuff like coin Ledger which is Automatically retrieve all of the fair Market values at the time of these swaps You know completely automated very cool Do you guys also track down all those Service fees so the exchange fees the Swap fees the slippage all those kind of Things that play into this how are those Tracked and how does that get applied to Your basically your tax report at the End of the day Exactly so any fees that you're Incurring while you know transacting They're in a sense tax deductible Meaning they're eating either adding to Your basis which is increasing that cost Or they're deducting for your from your Proceeds of the asset that you acquired In simply put it's it's reducing the
Amount of taxable income you're you're Incurring and so coin Ledger is built You know our our large blockchain Engineering team decomposes all of these Protocols and classifies all of these Gas fees transaction fees for you and we Properly tag them into the transactions That you've incurred and so you know by Using coin lger you're taking advantage Of those fees to lower the amount of Total taxable income that you'll have For the year yeah do you I'm kind of Curious do you guys currently track the Fees across the industry much like what We are able to see on different Reporting mechanisms out there with it's E or Salon Avalanche others within it The ecosystems are you guys tracking That as an industry looking at where Some of the fees flow is going I'm just Kind of curious in the sense of being Able to really see where fees are truly Being applied across these different Blockchains do you guys do anything like That it's a great question we have all That data we don't have any like public Facing dashboards built On we do have it you know we have the Data on like where are people actually Incurring fees on what blockchains and What protocols um interesting you know With the hundreds of thousands of users That we have but you know maybe we Should build something to show where I
Like it well I mean you know because a Lot of people would that could make for A bit of a decision process on when You're you know doing certain Transactions where you might swap with And also maybe in especially when you go Into cross chains I mean when you're Going to salana to ethereum which you Can cross chain inside Phantom you I Know this is getting complicated for Some people we'll make it very simple But the point is use coin Ledger and This helps make it a lot easier to get a Lot of these things done exactly I also Want to talk about um the idea of new Tax regulations so the IRS has started Been they've been releasing almost I Feels like monthly some new update uh And I noticed you guys gave uh tax Guides here on your website and you've Got oh gosh so many countries here now So this one was John uh back here just In December is this the full tax guide That you would say hey go down download This to get kind of get your frame Around what's happening in the US right Now yes just go to that learn tab on our Website there's the tax guides tabs and All of these are up to get up to date You can see we refreshed all of these Here just back in December and they're Completely free it's going to cover it's Pretty in depth right any question that You could likely have about crypto taxes
For your country these guides will cover So definitely would recommend um taking A read through these if you have Specific questions yeah we had miles on The show last year so he was uh he was There on the show talking about uh some Of these points so that's great there is A lot here I went through uh quite a bit Of this um over last week just kind of Getting preparation I like the fact that You guys go into the you know the normal Uh IRS guidelines around taxable income All those kind of things because Obviously this is just another asset Investment it doesn't this doesn't take Any kind of special awareness it's just Like if you think of it like a stock you Know you're going to have win and loses And you're going to have an opportunity There and you just have to understand How to report it all the problems is That with crypto it's so dispersed you Know there's there's not so much that Centralized so that is a big deal now in 2022 there was a big movement toward bot Trading we we had this conversation last Year and that presented a big problem For a lot of people because they had Thousands if not tens of thousands of Transactions that that came into that Place has that been a trend in 23 and Have you guys done anything in that area In terms of B Trading yeah we're definitely seeing
Just at a higher level uh number of Transactions for our average user tick Up um which of course the way our Pricing works is transactions based and So I remember talking with you about This last year you know for bot traders Who are doing potentially thousands and Thousands of Trades through their Bots Their tax reports can get expensive Ensive um so we actually are working on Stuff um around micro transactions you Know let's say you're getting like five Cents and staking rewards a day from Various places we uh are working to make It cheaper and more affordable to get Your tax reports from us okay cool um But in terms of just what we're seeing We are seeing just the amount of Transactions for the average user Continue to climb year-over-year which Is healthy it means that yeah people are Finding more and more uses for crypto um And I I think we'll continue to see that Climb I noticed you guys have you know In terms of the key areas around Exchanges I think a lot of people are Doing this if you're using a coinbase Right now coinbase delivers us kind of a A little bit of a pseudo report that We've got how is that ingested into your Service what kind of things do you guys Bring to the table that coinbase doesn't Bring to the table you know in terms of A ability to really analyze your
Position yes so coinbase is great Obviously um their tax reports will be Accurate if you only use coinbase like That's all you're on right right now if You have your own cold wallets that You're transferring into and out of if You're in defi if you're on other Exchanges if you're moving crypto at all On or off of coinbase that's where their Reporting breaks down because they're Only reporting on the activity that's Happening within the coinbase walls Right now coin Ledger right we're Integrating with all of your platforms All of your onchain activity all of your Cold wallets so we're stitching together All of those transactions and so that's Pretty much how it works is coinbase's Tax reporting is g to be accurate if You're solely on coinbase you know People are using coin Ledger for many Connecting different wallets I want to I Want to walk through uh a scenario that Plays out I or at least I see it play Out a lot with you know some of our our Own members that you know always are Asking questions in our private member Group one thing is let's say somebody They go out they buy Bitcoin $10,000 Worth they're holding it in let's say in Coinbase and then you know two months Later they decide I'm going to go ahead And put that on a cold storage wallet so I take it over to a ledger put my 10k of
Bitcoin it's setting over on a ledger You're ingesting both coinbase and Ledger all right so it looks like it's a Transfer when in reality it's just an Asset move at the same time maybe I say Okay wow Ledger had some problems I'm Going to take that and I'm going to move It to tangum it's a new wallet okay so My my Bitcoin is basically just moving Around when you ingest all of those Wallet data points is this looking like It's new income or does it go to the Blockchain and follow that transaction All the way through it yes the latter so Coin Ledger is not treating any Transfers of your assets as income Because it's not income right it's just Like' be like moving a $20 bill from Your right pocket to your left pocket Right you're not incurring any income And so coin Ledger is automatically Tracking all of that and it wouldn't be You know double dipping on income that You didn't actually incur yeah okay so Cool uh because that's been a question For a lot of people just trying to Figure out well yeah it's a common Confusion Point too and this is Something that will trip people up from Coin bases tax reports and other third Parties is they will they oftentimes Treat transfers out of their platform as Disposals which will book capital gain Even though it was actually just you
Transferring the asset to another wallet That you have ownership over yeah all Right well cool then that's that's Solved with coin Ledger as well all Right let's talk about uh we get audited You know the new check mark on Everybody's tax return this year most Likely is did you sell buy or you know Dispose of crypto you're checking that Mark uh and something whatever the case May be you do get audited what kind of Things do we need to be prepared for you Know in terms of documentation to deal With something like that yeah so if you Ever get audited you know they're likely Going to ask for and if if they're Specifically focusing on crypto they're Going to ask for any you know wallet Addresses that belong to you they're Going to be asking for you know records From all of your centralized exchanges Um and then they're going to be sifting Through all that transaction history They also will likely ask for bank Statements right that showcase um Purchases Fiat to crypto and so you Should be ready to you know have all of That now if you've used a platform like Coin Ledger right we have all that Documentation for you we we keep an Audit Trail that's you know will be Persisted throughout your account Forever which is just a detailed report Showing how every single calculation was
Done the source of everything um but but Yes that's what you'd expect and you Know being audited is how long do you Guys keep that because that's a seven I Think it's a seven years is it still Seven years right now so the IRS window Is tally three years unless they find um Like gaps and if they go in for three Years and find more then they can go Back to six years um and coin Ledger That will be on your account forever so If you pay for one of our tax reports That a trail is available forever you Got it all right cool let's talk about Treatment of long-term versus short-term Capital gains you you look at different Holding strategies especially in crypto A lot of people are in this for the long Term but some people are actually doing Swing trades and things of that nature How does that play out um for coin Ledger do you guys identify that what's The what's the process yeah exactly so As you mentioned um the IRS code kind of Incentivizes long-term investment and Thus it gives favorable tax rates if you Hold assets for greater than one year And so this applies to cryptocurrency Um if you hold your Bitcoin for more Than a year you're exposed to long-term Capital gains rates which are anywhere From 0 to 20% depending on the amount of Income and if you buy and sell within a Year of an asset that's simply ordinary
Income which can be taxed as high as 37% Currently okay and so there is tax Advantages of holding your assets for Greater than a year coin Ledger Automatically ingest this and can show You you know the holding period how long You've held your assets so that you can Do some tax planning you know and decide Well if I hold for one more month and Then I want to sell I'm actually going To to reduce my taxes by up to call it 15% right um and coin Ledger is a good Tool to help you identify where your tax Lots are yeah for sure let's talk a Little bit about the strategy that some People are doing whether it's a state Planning businesses that are you know Maybe single member llc's or people that Are out there saying hey maybe I should Buy my crypto this way how do you guys Treat that when you have entities Outside of just an individual what do You guys do uh in terms of the program That's a great question so coin Ledger Is pretty laser focused on retail um Cryptocurrency investors so other folks Businesses hedge funds prop trading Shops they still oftentimes use Platforms like coin Ledger but we're not Tailored to really service them um so I'd say if you're running that type of Entity may be better for you to talk to An accountant um you can still use our Tools but we really are focused on that
Retail investor and servicing them in Multiple different ways yeah David have You seen uh a bit of a shift within the Accounting you know industry that has Started to tick up in terms of accounts Because I know when we go out and talk With our CPAs a lot of times we actually Had to do a CPA change because they just Weren't as well you Know not certified but they just weren't Well trained in understanding crypto and The blockchain um are you finding more Uh CPAs and accountants that are Starting to maybe pick this up as a you Know a specialty Area more than it was five years ago you Know when we first got started but I'd Still say it's a fairly Niche um Industry where the demand for tax Professionals um is great than the Supply right it's still imbalan there um And you know we have a network of good Crypto tax professionals that we' vetted And we know um but I would still say There's many more people than they can Even handle for that sure yeah for sure Um we yeah we've talked to several of Them um just over the years in in terms Of interviews and stuff getting kind of For just for businesses but also you Know the opportunity for high Networth Individuals to really kind of maximize Their tax positions so that's been a big One when you look forward here for 2024
Anything on the horizon right now that You guys are seeing from the IRS that Says all right guys you need to be Preparing for next year 25 for the 24 Tax year maybe a little differently Anything that you guys know About the biggest the biggest item on The horizon doesn't have to do with the Retail Traders themselves it's more Businesses in the space which it's made A lot of headlines but the 1099 Information reporting requirements that The Brokers AKA The Coin bases of the World are going to have to do on behalf Of their users now this does apply any You know retail investors should be Aware because once um Treasury and IRS Officially put the stamp on the final Regulations um you know millions of These 1099s reporting on any gains Capital gains or losses or disposals That are happening on the broker's Platforms will start to be reported to The IRS every year just like if you you Know receive a 1099 from your current Stock broker and Fidelity or somewhere Like that yeah that's a big one that's Been on the horizon it's been all over The news honestly for the past three Years it's still not quite finalized but Within the next two years those 1099s Are going to start to be shipped out um And Retail investors should expect to Start receiving those um okay obviously
This is a a big enforcement mechanism That the IRS is using to track down who Has income that they should be reporting To us right well it's just like any 1099 You know it's like a whether you're an Employee and or W2 employee and you're Out there doing gig work of what you Know Postmates Uber you're getting 1099 From those companies the same kind of Scenario so I could see it's a little Different but of course you know for Investment platforms whether it's a Fidelity or you know something like Charles Schwab same kind of scenarios Are coming in in terms of tax reporting Uh back over to you guys as well so Nothing really new in turn what about The I know I know fby is is more of a Business side of things but have you Guys seen more I guess impotence of Businesses now starting to go in this Direction and just kind of coming to you Guys for you know Guidance yeah I haven't seen it but but It's mostly like Le because how we're Positioned in the market like you Mentioned we actually don't do call it Like accounting software which you could Think of like QuickBooks for crypto Native businesses but that's that's what You're alluding to is the way you're Actually accounting for these assets on Your company's books um there's a win There in that you can actually Mark to
Market um which is GNA show a more Realistic um balance sheet and what These assets are actually worth which is A good thing but I don't have a ton of Insight into our business is adopting This more as a result of that I actually Am not sure yeah well definitely I would Love to see more about this uh for all You guys watching right now make sure And check out coin Ledger's website uh They're a partner here at the channel And you know we love to have them we Always promo coin Ledger as one of our Premium products here for tax season so Check it out we'll leave a link down Below for you to do that couple of Things I would recommend is make sure And get started early number one get it Going and then um the whole idea I think Of this uh of this kind of portfolio Tracking this could be a big deal for You guys I think it will we draw in more Year round use so uh I would love to Learn more about that as you guys start To roll that out let us know we we'll Definitely drop some links out to our Audience and get going there anyway David it's always fun uh chatting with You and we appreciate the time today Thanks for stopping in yeah thanks so Much it's always good and if anyone Needs help with their taxes just hit us Up over at coin Ledger and we'll see you Soon Paul you bet all right you guys are
Of course maybe tun in over on the Podcast side of things make sure and Jump over to the YouTube channel because This is where we'll give you a little Bit more visual a here on the show and Of course if you're already subscribed Thank you very much uh we hit 400k so It's a big deal but guess what the way To really spread the news around crypto Is to like a video it's going to help Other people kind of discover what's Happening in this space so make sure and Do that if you guys want to catch me out There on X it's Paul Baron we'll catch You next time right here on Tech Paath
