EP 19 – Shehan Chandrasekera – Head of Tax Strategy at CoinTracker
The government is finally starting to pay attention to the crypto industry. If you own Bitcoin or any other crypto, you really need to understand the tax implications.
Unfortunately, most CPAs have no idea how this asset class is treated because it is still so new. Thankfully I was able to interview one of the leading experts in the world on crypto taxes! Shehan is the Head of Tax Strategy at CoinTracker and a highly decorated CPA.
We cover A LOT in this episode:
- Can the government find out what crypto holdings you have?
- What to do if you’ve never reported anything to the IRS about your crypto holdings before?
- How to harvest tax losses via the wash sale rule before it likely expires at the end of this year
- What crypto is taxable vs what crypto is not
- How to make up to $80k in crypto profits per year tax free
- and much much more!
I signed up for CoinTracker immediately after this interview and suggest you do the same if you have any crypto.
- Follow Shehan on Twitter
- Sign up for CoinTracker to stay on top of your crypto taxes!
- Shehan’s column in Forbes (very informative articles, definitely worth checking out!)
- Shehan YouTube videos:
Join my email newsletter!
Sign up for the Fold debit card to earn Bitcoin back on all your purchases! Get $25 free with my link. (Here is a video where I explain how it works and show how I was earning up to 10% Bitcoin back on purchases)
Sign up for Celsius to earn 6.2% interest on your Bitcoin and 8.88% interest on your cash (about 1,000x what the big banks give you – see my blog post). Get $50 in free Bitcoin for signing up via my link.
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Submit an audio question and I’ll answer it in-depth on the podcast!Click here for the raw, unedited transcript:
This transcript was automatically generated using Descript.
Ismail: Welcome to The Bound to Be Rich podcast, where I attempt to reverse engineer people who seem to be successful, no matter the circumstances, so that you can apply those lessons to your own life. I’m your host, is Mel Ed. One quick thing before we get started. I am starting my own email newsletter and I would love for you to join it.
It’s going to be like a personal note for me to my friends, of all the best things I’ve come across that month from hacks and tips, interesting stories, products, books, ways to make money, and who knows what else. It’s totally freight and if you don’t like it, you can always opt out at any time, so there’s no downside.
The link to join is in the show notes, and I hope to see you on the list in this episode. We are joined by Shehan, one of the world’s leading experts on crypto taxe. Shahan is the head of tech strategy at Coin Tracker, The co-founder of Column Tax and even has his own column in Forbes. He’s also a renowned speaker and has given presentations at places like Google, Coinbase, Facebook, Coin Desk, and Square.
On top of that, he’s also a highly decorated cpa, receiving numerous awards like 40, under 40 in 2020 and 2019. Outstanding young CPA of the year and Texas CPA’s 2020 Rising Star. Simply put, if you have questions about crypto taxes, Shahan is without a doubt the guy to speak to. We cover so much in the shorter interview.
It may be my shortest yet most valuable interview yet. Immediately after speaking to Johan, I set up a Coin Tracker account and started optimizing my crypto portfolio for taxes. I strongly suggest you sign that for Coin Tracker as well. It’s like TurboTax, but specifically for tracking and reducing your crypto taxes, you could check it out for free at the link in the show notes.
As we were conducting this interview, there was a large pullback in crypto and the markets in general. I wanted to get this episode out to you ASAP because you may be able to harvest tax losses on this dip. This also may be the last chance that you have to benefit from the wash sale rule. If you have no idea what I’m talking about and you own crypto, you need to listen to this one.
Shahan, thank you so much for taking the time to join the show.
[00:02:27] How did you get into Crypto Taxes
Ismail: Appreciate that. Yeah, thanks for having me. So I was very excited to be chatting with you, uh, for a couple reasons. Uh, I was fortunate to interview the CEO of Celsius, so we have a lot of crypto people following us. Um, there’s also a lot of traders following us and that a lot of tax questions started coming up.
I didn’t know how to answer, so I started to reach out to my accountant. My personal accountant, uh, didn’t know anything. Uh, and I have a lot of friends who are also CPAs, intelligent people, but they really didn’t know anything about crypto. So I guess my first question to you, just to set things up, How did you land in this niche of crypto taxes?
Cause I think it’s like, it’s a great place to be in, cuz obviously there’s a great need for it. Yeah.
Shehan: Um, so I’ve been at CP for like nearly a decade kid now, or I got into crypto around 20 17, 20 18 timeline. Uh, at that time, like, you know, there were, there nobody who was kind of specializing in crypto taxes and et cetera.
So I started reading about it, started investing. Um, and since then I’ve only focused on crypto. .
[00:03:30] What is the difference between fifo and specific id
Ismail: Awesome. Uh, I see a question that, and these are also like things I’ve struggled with and a lot of my listeners I’ve struggled with. But I see a lot of people default to f o first and first out and there seems to be debate, like if you go to regular accountants, they say that you should use f O, uh, but I think I’ve seen you tweet to some people that you can also use specific id.
So could you please elaborate that for the audience? What is the difference and are you still able to use specific ID for like highest and first? .
Shehan: Yeah. So if you look at the IRS FAQs, uh, published on their website, uh, I don’t remember the exact question number, uh, but the IRS is saying that you can use specific id, uh, in simple terms, specific ID means like you can pick and choose whatever the, the unit that you’re selling.
Uh, so you can do specific criteria as long as you have, uh, detail information about those lots, meaning you need to know the purchase price, you know, the unique engine fire date, uh, sold the market value, et cetera. So as long as you have all those, you know, information with you, you can literally pick and choose whatever the units that you’re selling for tax purposes.
And if you’re using some type of crypto tax software tool by Coin Tracker, that’s gonna help you achieve that automatically. Now, if. Don’t have all that information, then your default method of accounting is gonna be five four. Uh, in some cases it could be, it could work for you and in some cases it could work against you.
It depends on your tax situation. But generally speaking, high full, which is a subset of specific because Ally allows you to kind of pick and choose whatever the unit that you want. So the high. Uh, in the case of high four, you’re picking the units which you pay the highest amount for. So when you use high four, you are, uh, you know, releasing your taxes because you are disposing of the, the most expensive units.
Ismail: Yeah, obviously
[00:05:15] Can you use Cointracker?
Ismail: I think in crypto, f o first and first out is terrible, so if you can do the specific id, which requires tracking. So the next question is with Coin Tracker, can you use that? If someone’s listening to this and they’ve never used it, they have this history of all these buys and you. Daily, like I used to do daily recurring buys.
Can Coin Tracker go back in time years and organize all of that for you now?
Shehan: Yeah. So Coin Tracker is a tool that allows you to reconcile your crypto activity by connecting to your wallets, exchanges, and blockchains and coins. Uh, so when you connect a wallet or an exchange, uh, to coin records to an api, uh, it goes back to the very first transaction that happened inside the wallet or the exchange.
So yes, you do. Complete record of your history once you connect, uh, your wallet exchange, your coin tracker.
Ismail: The other question that comes up a lot is, uh,
[00:06:06] Can you offset gains with losses?
Ismail: because a lot of people trade, uh, whether it’s stocks or options, if you have losses in stock or option trading, short term trading, can you use that to offset gains, uh, let’s say holding Bitcoin long term?
Shehan: Yeah. So there. , The answer is yes, but it, there’s a, there’s a different way of doing this. So there, if you, if you look at the iris code, uh, there’s a, there’s a certain way that you need to net, uh, losses with the gains. So first you take your short term gains and offset that with your short term losses.
And then second, you take your long term gains and met them with your long term losses that could be arising from stocks and crypto. So you got two buckets. And then you net each other short, uh, term gain of loss with the long term gain of loss. And so when you net those two buckets, um, if you have like a net loss, you can only deduct up to 3000 in, in the current year.
Any losses in in excess to that 3000, that’s gonna get carried forward to future years. And then you can use those carried forward losses to offset future.
[00:07:19] Carry forward
Ismail: those carry, is there a limit on the carry forward? Let’s say, uh, you lost a hundred thousand dollars trading this year. Can you carry that forward for 30 years?
Yeah, it’s unlimited. Yeah, unlimited. Okay. And so it sounds like if you have lost a hundred thousand dollars trading and it’s December 30th, uh, and you have a ton of crypto gains, you can sell enough Bitcoin, for example, uh, to offset that a hundred thousand dollars loss and not pay tax. Yeah, that. . Okay.
That’s good to know. Uh, the other thing that I would really, I’m curious about is the wash sale rules, because I’ve seen, and by the way, I’m gonna link to you write these articles for Forbes that I think are amazing that I think everyone should look read. I’ll link to that in the show notes. But there’s one that you had recently about, um, I forgot who it was, but someone in the government, this group in the government is trying to get rid of the watch sale exemption for crypto.
Can you elaborate a little bit? , what that is and how we may be able to benefit from from it for now. And do you think it’s highly likely it’ll be removed after this year?
Shehan: Yeah. So there’s this document that came out of the, um, Ways and Means, Committee of the House. Um, what they’re trying to do is they’re trying to subject crypto into the wash shell rule.
So what that means is, um, so let me give you an example for, for those of you who are not family with wash shells. So say that you bought a Bitcoin for 10,000 bucks, um, and on the next day it went down to 7,000. And what you do is you sell that Bitcoin as 7,000 on the next day, uh, and then realize that $3,000.
And on the following day, you buy the same Bitcoin, uh, at the lower price, which is 7,000. So because crypto is not subject to our sale rule, IRS allows you to deduct that $3,000 loss. But after this new proposal, I if, if it, if it gets accepted, you had to wait 30 days before and after you buy back the same coin which you sold at a loss.
If you didn’t wait 30. , that $3,000 loss in my example, it’s gonna get owed, so you’re not gonna get the benefit of that loss. Um, this is the rule that we have been using for stocks and security transactions for a decade now. Uh, up until this point, the crypto was not subject to this rule, but going forward again, if this proposal, um, is accepted, crypto’s gonna be subject to divorce, jail rule, effective January 1st, 2020.
So our, if you talk to other industrial experts, you know, they’re, they’re saying that, you know, this bill’s gonna pass, you know, uh, with, with this, you know, there’s no amendment, uh, for, for this partial rule. So what that means is like you have roughly, you know, from today to December 31st to, you know, maybe if you have any losing portion to kind of sell them and buy back again.
And however, sales. Without having to be that 30 day period. So, um, there are some examples. So, uh, if you’ve read that article that, that the show notes that you can see, uh,
[00:10:24] The next day
Shehan: how that impacts you
Ismail: and it’s, I think it’s safe to assume that that will pass because everything else is treated the same way. So it’s probably the last chance for people to take advantage of this rule.
Um, and you, you said that the next day, so is there a limit, like for example, as we’re recording this today, cryptos dropped uh, significantly. Uh, so if someone bought crypto yesterday, Um, can they sell it today and buy it immediately after, or do they have to wait a day to buy it back?
Shehan: Uh, you can immediately buy it back today or on the next second or the next following day.
Uh, there there’s no restriction of buying back, but you won’t be able to deduct that loss, uh, because you didn’t wait, uh, 30 days to buy back under the wash rule if that were to pass.
Ismail: But for now, you can buy a second later and you can. Correct. Get the loss. Correct. Okay. Yeah. Uh, and, and Coin Tracker, does it do that level of tracking where it says, Hey, um, you know, you bought Bitcoin at 60,000, it’s now if you, you can sell this much and avoid taxes.
I don’t know if I explained that correctly. Yeah, yeah. So
Shehan: we have this, uh, you know, different screen code taxes, harvesting, uh, screen. So it analyzes your portfolio and it tells you, okay, if you were to sell this lot at this price, you would save this much of, uh, Um, so yeah, the, the coin, I does that automatically.
Ismail: Awesome. Uh,
[00:11:45] Is it worth it?
Ismail: that’s good to know because I know personally I was, I was buying daily for a long time and I know I have some buys above this level, so I can immediately sell that lock in the loss, and then at the end of the year, if I want to sell, uh, some crypto, I’ll be able to without a tax implication up to that amount.
Yeah. Um, okay, So another question that I get often is, is it even worth trying to time. Crypto trading, because let’s say you think Bitcoin’s gonna go to a hundred, $150,000 this year, but it’ll pull back down to a hundred thousand. Right? Does it make financial sense to sell it at one 50 to re buy it back at a hundred?
Uh, because you’ll have to pay tax, um, which, which is probably at most 20% for long term holding. So how, how do you determine whether, hey, just buy it and hold it, or, you know what, it’s really overextended. Let me sell it, pay the tax on the gain and buy it. .
Shehan: Yeah, I, I guess it, it all depends on, on your personal goal.
On personal financial goals. Um, I mean, personally I don’t sell or cash out anything unless I have something else better to do with that cash. And in this current economic environment, it’s, it’s hard to find any asset clause that’s gonna give you higher returns than crypto, maybe venture capital. But then not everybody has, you know, access to that.
So that, that’s my personal, kind of like a framework of. Um, but it, it depends on, on your per situation, maybe there’s some debt that you need to pay, like sit on loans or something like that. If that’s the case, uh, in my opinion it makes sense to kind of cash out, pay the tax, and pay off the debt and, you know, go back in.
So the answer to that question is really depends, depends on your situation.
[00:13:25] Should you time it?
Ismail: So if, if you’re like me and your goal is to simply acquire as much stats as possible and increase your Bitcoin holding, Uh, do you think it would make more sense to try to time it or do you, do you think it’s just better off to just hold it in?
Wait, like why is that how you think about it? You just hold it in? Wait.
Shehan: Uh, so again, my, my answer may be biased. Um, I, I think timing the market is a, is such a big distraction if you, especially if you have like, you know, high activity, like, you know, maybe like a work or something else going on. Um, so personally what I try to do is I try to increase my time in the market versus time in the market because market goes you up and down all the time.
Uh, but if you spend, you know, I don’t know, like three, four years in this market to consistent, you know, recurring purchases, um, you’re definitely gonna end up, you know, making money in the long run. So, uh, for me, like I, I just, I just don course average, uh, I don’t. I don’t even look at the prices anymore.
Ismail: now a quick message from our sponsors.
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[00:15:20] Crypto 2017
Ismail: so be sure to check it out if you haven’t already. The link to sign up is in the show.
All right, let’s get back to the show. What you mentioned that you got into crypto 20 17 20 18, and if I remember correctly, I think it was the end of 2017 that it was going bonkers like the last month of the year. So if something like that happened again and it’s going a hundred, 1 50, 200, like it’s going crazy, you still don’t think, you wouldn’t be tempted to take some off the table because you’d know there’d be a pullback after even.
Shehan: I mean, so for example, uh, I was looking at Solana, I think it, I think maybe a couple weeks ago you went like all the way up to 200 or maybe even more than that. And now it’s like 1 35, 1 40. So, um, I guess it’s, it’s easy to get as retail investors, we always kind of get triggered by these, you know, uh, you know, old all time high prices.
But actually we should get triggered by the old time low. Uh, this is exactly what the institutions are doing, right? Because they don’t buy into stuff. Then they’re Oh, valued. They’re buying the stuff, then nobody’s looking at it. Um, so yeah, I mean, I, I don’t, I don’t look at the process anymore, and I remember the 2017 timeline, I think.
Uh, the Bitcoin was like trading for three, 4,000 for a long time. Then it, it went like all the way to 20,000, Uh, went down again. Uh, but again, I, I thought that was a distraction as well. And now you see 20,000 to 60,000. Now today’s like what, 40, 43,000? Um, just over average and in several years, like you’ll be at a really nice spot.
[00:16:56] If you own crypto
Ismail: That’s good advice. Um, so what about, I think if, if you were a holder, Uh, even with the question that the IRS had in the tax form this year, I think if you bought it with US dollars, you didn’t have to disclose that you own crypto. Um, I believe that was the clarification. So you could, you could, theoretically, the IRS may not know that you own crypto if you only held until this point.
Um, so for people who are worried about not having reported anything, or let’s say someone did sell crypto two years ago a little bit and hasn’t reported. What advice do you have for them on what action to take now? Should they be worried? Do they have to go back in time and report that? How do they handle that?
Shehan: Yeah, it all depends on, uh, whether you had a gain or a loss, right? Because if you, if you had a loss, that means you lost the benefit. Uh, IRS doesn’t really care about you not taking a tax benefit. So in that case, uh, you can decide, okay, if this was like a small loss, like it doesn’t make sense you. Um, because it’s a loss, right?
Because it’s, it’s, it’s in favor of, uh, you. Uh, but if it was a gain, what I would do is I would sit down with the counter and, and, and amend the return because, uh, that means there was a situation where you owed money to the irs, but you didn’t do that because you didn’t record it. So now it’s probably time to, uh, amend the return and, and pay the, uh, the taxes that you couldn’t.
[00:18:19] Be proactive
Ismail: I think I saw, I think I heard you in a previous, uh, interview mentioned that the IRS is very reasonable and understanding because this is all new. Um, do you think people would be safe to just say, Hey, as long as I report it gone forward, I’ll be fine? Or do you think you should be that proactive and go back in time?
To report games.
Shehan: It’s in, in this space. I think it’s generally, uh, is a good idea to be proactive because, uh, you see like, you know, IRS issuing subpoenas all the time, like, uh, 2021, we sell subpoenas, getting issued to, uh, Cracken and felons. Um, in my opinion, it’s, it’s better to kind of, uh, you know, amend the return and, um, and just be, you know, transparent of the, I.
Versus waiting until your name get identified, uh, through one of these subpoenas and you get a different type of letter. Um, so then at that point you viewed in, in a different angle than you, you are just voluntary amending your return. So yeah.
[00:19:16] Statute limitation
Ismail: would you mind, um, I know you also talk about what is it, the three six year and the unlimited rule.
Um, so it’s to the benefit of the taxpayer to report something. Can you elaborate a little bit on that for everybody? Because I think a lot of people are tempted. If you’re in crypto, a lot of people believe in like decentralization and getting away from the government. So, uh, they’re tempted to hide this, but would you mind elaborating why it’s to your benefit to at least report something?
Shehan: Yeah, there’s this co statute of limitation. Um, you know, it’s a technical thing and I don’t think a lot of people know about it. Uh, what, what that means is, you know, if you, if you properly file a tax return with the irs, uh, Iris can only come after you for the next three years from, from the date of. Now if you, uh, understate your income by over 25%, IRS can come after even six years of filing the return.
So, so those are the two things you three years sexual limitation and the six years success to of limitation. Now, if you don’t file any tax return, iris can come after you forever. Uh, because to begin the statue of limitation, this three year or six year time period, you need to file return and you never file a return.
So that’s why filing something is better than filing nothing, because as soon as you’re filing something, you, you start the statue of limitation clock. So Iris legally only has three years to come after you.
[00:20:40] Public Ledger
Ismail: And you mentioned before the subpoenas, so obviously the, the iris is paying more attention to crypto.
And I know that, um, you, you’ve tweeted about this before, that every transaction in Bitcoin is in a public ledger. Uh, to people that are tempted to hide or not report things, or even as Michael Sailor, I think, jokes. Um, you got into a boating accident and you lost access to your Bitcoin. What’s your take on whether it’s even worth playing those games?
Shehan: Yeah, so one thing that’s, uh, fact is that all the transaction that you, you guys are doing, uh, is is is online, right? I mean, it’s, it’s, it’s suit anonymous, meaning there’s a, uh, permanent trip. , you know, that transaction, uh, the occurrence of that transaction. So, uh, IRS has technology to like, you know, if they really need to, and this is, they have done this before when it comes to criminal activity and et cetera, uh, they can figure out the person behind those transaction IDs and wallet addresses and kind of tie it back to like a physical person and, um, and put them through the, through the older legal process.
So, So, so, so I think my, my recommendation is that the crypto, crypto is like the worst asset, plus you made taxes on because there’s always a record about, about you on the internet. It’s just a matter of, uh, somebody like a regulator tying that address or a transaction ID to you. And as soon as it happens, it’s really, really hard for you to say, I didn’t do that because it’s blockchain, right?
It’s, it’s, , Uh, what, what about
Ismail: if I was in a boating accident and I lost access to my keys, ?
Shehan: Yeah. So that’s, again, it depends on the facts and circumstances of each case, right? I mean, I’m pretty sure Iris gets that, um, that argument all the time. Uh, and there was, there was a conversation that I had with Iris, uh, criminal, uh, c criminal investigation agent, um, in, in some, like, you know, very, very, you know, high tax, you know, tax evasion cases, what they do.
uh, they actually, so they, they go to your home or the work or whatever, Um, you know, they take all the assets that you have there where they think that, you know, you stole crypto. Um, and then some people literally actually remember the 24 key phrases in their head, and as soon as they get out of the jail, they, they go to some other country and they recreate the wallet.
Yeah, it, it is possible to do those type of things, but you decide whether, you know it’s worth going through all those, all that hassle.
[00:23:12] Credit cards
Ismail: Uh, the other thing that I’ve, I’ve referred a lot of my listeners to the fold card, uh, and now the block five credit cards come, come out. Uh, there’s, you get, you get, you get to earn stats on these transactions, but there’s a lot of transactions, so that’s a crazy thing to track.
Do you have to track it? Are those taxable?
Shehan: Yeah, unfortunately, uh, because cryptocurrencies saturated as property in the US, every time you buy a cup of coffee or, or pay for a subscription to any of these cards, um, that those transactions are taxable. If you’re paying directly in, in crypto, um, I mean, again, that’s, if you’re using actual like contractor, you can track that automatically.
Uh, the, the other thing is that you sometimes, some of these cards pay, uh, you know, crypto. Um, so fortunately crypto rewards are not taxable, uh, at the time we receive it. Uh, it’s one of those, you know, loopholes, uh, that the credit card industry has lowed for like some time. Uh, it’s very similar to like, you know, you’re getting these, you know, AI airline, you know, credits and stuff like that.
When you spend your, you know, money fiat to am, we can expresses something like that. Um, it’s, it’s not considered like an income recognition event. It’s considered like you’re getting like a discount from the sales price. Hm. So, I mean, but you still have to track those, you know, whatever the bitcoins or whatever that you are getting, uh, because when you later cash them out, those rewards, that’s gonna be taxable.
But at the time you receive it, that’s, that’s not considered taxable.
[00:24:40] Zero cost basis
Ismail: So when you sell so out, that’s what I was asking about is using cards like fold and block by where I’m paying in dollars, but I’m getting sat back. Uh, the sat back is not taxable if I do sell it in the future. You’re saying that they would be taxable.
What would be the cost basis for. .
Shehan: So that would be a zero cost basis, uh, because you just receive it, you know, without you paying anything. Mm-hmm. and then you didn’t recognize an income at the time. You receive those three bullets.
Ismail: So you still want to track them with Coin tracker. Uh, and if you use the high F, those are the last ones you’d sell.
Cuz they have a zero cost basis.
Shehan: Um, I mean, I, I think in this case, every, all those, you know, rewards would have a zero cost basis because if we follow the theory, At the time you receive it, these rewards are not taxable. You wouldn’t report it, right? So if you’re not reporting it and recognizing an income, uh, you would have a zero cost basis, uh, asset.
So when you later sell them, uh, in this case it wouldn’t really matter because all those rewards gonna be zero, zero cost basis, unfortunately.
[00:25:42] How to avoid crypto taxes
Ismail: What’s a good loophole to be aware of? Because I know I’ve, I’ve earned stats that have like more than tripled or quadrupled in value and. I, I, I guess I don’t own taxes on those.
I didn’t know that. That’s good to know. Um, so you also have this great video that I’ll link to about how you can avoid $80,000 in crypto profits. Right. Um, I’m gonna link to that in the show notes, but can you elaborate just very shortly? Uh, I assume that that’s only if you have no other income. Uh, and that’s if you’re married in that example.
But theoretically, if people own a lot of crypto, they never work. They can sell $80,000 a year tax. Correct. Yeah. They
Shehan: can sell $80,000 worth of, uh, like long term capital gains. That, that, that distinction is super important. Um, so yeah, if you’re married and if you want to cash out $80,000 worth of your long term crypto capital gains, you don’t have to pay any taxes.
Uh, if you’re single, that limit goes down to 40,000. And
Ismail: does that also include, is there state taxes that would factor in as well, or.
Shehan: separate. Yes. So the state, I mean, you would have pay state income taxes and every state is different. Um, some states may have some exemptions, but generally speaking that 80,000 and 40,000 limit, those are for like federal, uh, for state, like you, you most likely will have pay some little bit of taxes.
Ismail: Okay. And, um, I think the only, correct me if I’m wrong, but the only way to truly avoid paying taxes on crypto is to do it through like a Roth. I. Situation And now that there are these self-directed IRAs that allow you to buy crypto in the ira, is that correct? Is that the only way to really avoid
Shehan: Um, I wouldn’t say it’s avoidance, right?
Because even inside a sub crypto ira, like,
[00:27:30] Self directed IRAs
Shehan: you know, you are deferring the, the taxes. You know, when you later cash out, uh, your money at your retirement, then, then you’re gonna have to pay some taxes. But the idea is that, you know, you have all these gains, uh, and those gains are being compounded, uh, without you paying taxes so you can have a higher return.
And, and, and with that said, if you, if you convert your, uh, you know, Roth ira, which you have already paid taxes on to a accept IRA, and then bike a crypto, in that case, uh, you would end up paying no taxes. Again, there’s so many like limitations and so things that you need to fulfill. In that case, you wouldn’t pay any taxes because you contributed money, which you already paid taxes full.
Ismail: I don’t know if you’re
[00:28:18] Rolling holdings
Ismail: the right person to ask this, but I I, at the time that I started investing in Bitcoin in my ira, um, there, it wasn’t, there wasn’t an easy way to do the self-directed IRAs for, for crypto. So I was just accumulating G BTC throughout the years. If you were to do a self-directed ira, do you have to liquidate your entire account in order to roll it over?
Can you roll over? Uh, the holdings or do you, do you not know how to, how
Shehan: that works? Yeah, it’s, uh, it’s not my area of expertise, but, but there you can do, so if you have like a regular IRA or a Roth ira, which is in Fiat, um, you can roll over it to, to a self-directed ira. So you have some capital inside the sector ira, which you can use to purchase crypto.
Ismail: Got it. Okay. I’m curious, you, you seem to be playing with nft. Um, why are you bullish on NFTs?
Shehan: Um, I have an open mind. I mean, I, I, I don’t want say that I’m, I’m bullish. Uh, I’m not very either. I just have an open mind. I, I think it’s, it’s pretty new. Um, I just wanted to see, you know, how these things work. Uh, so I created some and, you know, put in an auction and, uh, yeah.
So I’m, I’m just playing around.
[00:29:33] NFT Tax
Ismail: Yeah, I, I, I also wanna play around, I think that something people be aware of is that there’s a. , uh, it’s a tax effect when you buy the nft, cuz you’re, you’re exchanging the Ethereum to buy it. So you’re paying the tax and the capital gain on the Ethereum, and then if you sell the NFT for more, you’re paying a tax on that as well.
Is that correct?
Shehan: Yeah. So you, I mean, most NFTs can only be purchased by Ethereum, right? So that means you are always spending like an appreciated asset to buy, uh, buy an nfd. So that triggers a taxable event. And when you later sell that NFD for, for a profit, that that also triggers a taxable.
[00:30:08] Mining Tax Benefit
Ismail: and final questions.
Um, I think there’s a tax benefit for people that want to get into mining, uh, to invest into mining equipment. Can you elaborate on that a little bit quickly?
Shehan: Yeah. So mining income is taxed at the time you receive it. Uh, if you are mining as a trader business, you can, uh, deduct, um, your mining machines.
You can just write them off in the first year or any business related expenses like, you know, internet fees, utilities, rent, and et. C. Uh, you can use those expenses to offset your mining income.
[00:30:39] High school interviews
Ismail: So theoretically, if you invest a hundred thousand dollars to mining, um, you can deduct that from the gains that you’d realize.
Would you mind the coin’s going forward up to a hundred thousand? Um, yeah. Awesome. So last questions I ask everybody. Um, if I interviewed people around you in high school, would they be surprised at all your success, or do you think they would say, Hey, this guy, you know, he, he always had it in him.
Shehan: I would say they were just surprised.
Ismail: They’d be surprised. Alright. That’s very humble. Um, alright. We talked a lot about tax avoidance and tax planning. I’m sorry, money crypto. Uh, but what is a rich life to you? Cuz it’s obviously not all about money.
Shehan: Um, I think rich life is about having, uh, the freedom to do what you want in your life. Um, yeah, just, just having more time to do what you want in.
Ismail: Awesome. Sh
[00:31:30] Final thoughts
Ismail: thank you so much. I appreciate your time. Very valuable information. I will link to everything that’s show us. Is there anything that you wanna point people to in particular? Um,
Shehan: a couple of things there. If you guys file an extension on your taxes. Uh, October 15th is deadline. It’s coming up pretty soon, and after that there’s gonna be another taxes in 2021.
So, um, make sure you’re using it to like, you know, coin record to track your crypto taxes, uh, and produce the forms. Um, Yeah, it’s time to, uh, be compliant because it’s not the time to kind of play, uh, KET and moki with the iris.
Ismail: I totally agree. And now that I have confirmation from the expert with the wash sale, um, I’m signing up for Coin Tracker literally after we get off this call so I can figure out how much I can, uh, benefit from with the wash sale.
So I suggest everyone does the same. All right, Sean, Thank you so much and have a great day. Appreciate it. Okay.
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