Cryptocurrency Mining & Taxes Explained – ☕Coffee With Carl EP-18 Prt. 1 (NEW Series)

(upbeat music) – Hello, everyone and
welcome to another episode of Coffee with Carl, I am
your host Carl Zoellner. I'm one of the attorneys with
Anderson Business Advisors, and as you can see by our background, today, we're gonna be
talking about cryptocurrency. I'm gonna do this one in two parts, I wanna go over some of
the basics in part one and then on part two, I'm gonna hit on some of the new guidance
the IRS has put out about cryptocurrency and
so as sort of an update. So, we're gonna do this
in a two part series, 'cause as you know I
like to keep this short, so that way, you can split
them up and look at them. So, start now, cryptocurrency. Most common, it's become
more popular once again, so it's tend to go through cycles. About this time last
year and the year before, it was very popular and
then all of a sudden, the price dropped and
it became less popular. Now again, it's starting to pick up again, people are starting to reinvest. We're looking at all
sorts of different types of cryptocurrency investment.

Most commonly, we're looking
at cryptocurrency investors, we're looking at folks
who maybe do mining, which is basically the
gathering of cryptocurrency by maintaining the blockchain. There's even, there's mining machines, there's all sorts of ways, there's cloud mining,
there's all sorts of ways to generate income from that. Income generated from cloud
mining or mining in general is gonna be tagged as active income, meaning it's going to be
coming through when you earn, that money is gonna come
throughout your individual tax rate, which is in the,
you know, all the way from 0 to 10, to 12, to 22, 24, 32, 35 or 37% depending on how much money you earned and scaled through those
categories plus the 15.3% self-employment tax for
those mining operations. Now, also when we talk about
cryptocurrency investing there's ways that you can
just purchase the coins or trade them almost like stock. This is actually probably
the most common way people are using cryptocurrency these days and just like stock, the IRS treats cryptocurrency as property.

So the name is sort of misleading
and that from the IRS's perspective, because IRS
does not treat the trade of cryptocurrency like currency
from the tax perspective, but rather treats it like
property, more like stock. Normally, when we are looking at stock or even cryptocurrency, we
are now focused on then, short-term versus long-term
capital gains since it is property. So for my real state investors
out there, stock traders out there, you'll actually
be fairly familiar with the type of tax
treatment you should expect if you are investing in cryptocurrency. Generally, its difference
between long and short-term capital gains from a timeline perspective, short-term capital gains are
investments that take place in property that take, that
are usually a year or less, and for long-term,
looking at a year or more, or more than a year.

So if you hold your cryptocurrency
for more than a year before you sell it, you're
looking at your long-term capital gains rates versus short-term. Short-term capital gains
rates, you're looking at those numbers I mentioned
earlier, except without the 15.3% self-employment
tax or technically, adjusted the 14.13%, but
that is the difference. So short-term capital gain
rates, just as a review, 10, 12, 22, 24, 32, 35 and 37% depending on how much income you generate. On average, I would say,
our clients are normally in the 22 to 32% brackets, however, there are those, of course, that scale up to 35s and 37s, and there are once that
are on the other end, maybe just starting out, that
are in the 10 to 12% range. Now, long-term capital
gains rates, so let's talk about if I say, I bought a
bitcoin, and held it for more than a year, and then
decide to cashed it out. When I take that money, now I'm looking at long-term capital gains rates. Now, long-term capital
gains rates are more favorable than your short-term
capital gains rates, still does not come along
with the self-employment tax which is nice, but most
con for the long-term capital gains rates,
we're usually looking at zero, 15, or 20% on what percentage you
would pay on that income.

Most common bracket
because it covers the most, quite frankly, the most amount
of money or the widest range of income is going to be your 15% range. However, a lot of folks,
we can get you to fit in to the 0% range, and then
some of my highest net income earners, maybe
looking at that 20% range. So this is the initial video
on just sort of talking about the tax implications
of trading cryptocurrency. Part two, we're gonna go
into some of the IRS guidance that has come out recently
on trading cryptocurrency and what qualifies as a taxable event when you're trading cryptocurrency. Once again, I'm Carl Zoellner with Anderson Business Advisors. For our existing clients,
always happy to hop on a call with you, if you wanna talk a little bit more about alternative
investments, as well as a ton of advisors standing
by for anybody who else is interested, who may
not be a client yet, and interested in getting
some information as well.

So once again, I put out
a ton of free content, I always invite you to
consume that content, share with friends, and like I said, if you ever want an individualize consult, give us a call anytime. Thanks.
See you on the next episode. (bright music).

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