December 27, 2023 • 10 mins
In this episode of Common Sense Millionaire, I’m going to equip you to handle your cryptocurrency like a pro. We're going to tackle the IRS's classification of crypto as property, and it’s potential for recognition as an investment security by other organizations. Your digital gold is not as anonymous as you might think - and whether you're investing through an investment company or independently, it's crucial to keep your wallet address protected and carefully keep records. I’ll also share an unforgettable story that highlights the cost of misplacing your wallet address… One man's loss of his hard drive resulted in him forfeiting billions in cryptocurrency. Don't learn this lesson the hard way.
Tune in to the discussion today!
Thank you for listening to The Millionaire Mindset Podcast with George Dines.
To connect with George visit www.georgedines.com
To Schedule a call with George visit: https://georgedines.com/contact/
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Welcome to the Common Sense Millionaire, where we
work to promote your financialadvancement in knowledge process
and education so that you andyour family become financially
secure.
This is the place I shareCommon Sense Action Steps that
you can take today to assistyour financial advancement.
So sit back, grab a drink andlet's get started.
(00:23):
Common Sense Millionaire, hereToday we're going to talk about
crypto.
That's all I hear about it'scrypto.
Oh, I want to get into crypto.
I want to do crypto, right?
Ah, how do I do crypto?
That's the question I neverreally hear.
The question is not just how doI do it.
The question is how do I do itproperly from a tax perspective?
(00:45):
Because I can guarantee you, irsis looking for people who have
crypto who think that they areinvisible from detection.
Surprise, you're not Okay.
It's very clear that the FBIand other government agencies
(01:05):
can track you down a lot easierthan you think I know.
You all see a lot of theseheadlines about thefts of crypto
10 million here, 20 millionthere, 30 million there.
What they don't tell you a lotof the time is that most of that
money has been recovered.
So how this can be, as one ofmy teachers used to say, if
(01:26):
you're getting into cryptobecause you think that nobody
can find you or that nobody canunderstand what you're doing,
okay, that's the falsity andyou've got to be careful.
So some of the issues are let'sstart from the tax perspective,
because that's where people'srisk is in crypto assets.
Let's start with who isdefining what crypto is from a
(01:51):
tax perspective.
That's your friends at the IRSyour friends, not necessarily my
friends.
They've published a publication2014-21 that defines exactly
what cryptocurrency is.
The IRS has claimed, or has putin its notice, that crypto is
(02:14):
to be treated as property not ascurrency or not as a security,
but property.
The fight going on in thecrypto world right now is the
IRS has defined it as property.
However, other organizations,especially governmental
(02:35):
organizations, are wonderingwhether or not it should be
classified as an investmentsecurity.
We don't really have time toget into all of the aspects into
making that a security, but weshould anticipate in the next
few years some type ofreconciliation as exactly how
(02:56):
crypto should be treated from atax perspective.
It may change, it may not, butat this point we just don't know
.
Now, the problem with crypto ispeople believe that they're
anonymous.
So when you have the crypto,either you have it in one of two
ways.
The first way is you'repurchasing crypto assets through
(03:21):
an investment company One ofthe big ones, like Goldman Sachs
or any of the other investmentcompanies there.
When you do that, that foldsinto their reporting mechanism
so that at the end of the yearyou'll get a 1099, which will
specify what you purchased thatcrypto asset for, what you sold
(03:44):
it for, and either you had again or a loss.
That gain or loss are treatedas either a long-term activity
or short-term activity.
So if it's a long-term activityand you lose money, you get a
partially, or you may beeligible for some level of a tax
deduction for that loss.
(04:07):
Now for the purist work with thefantasy that crypto allows them
to work in an invisible world.
That's not detectable.
So when they receive cryptobecause they may be involved in
a mining activity or somebodymay have given them crypto for
the purchase of an automobile,for example, right, well, when
(04:32):
that occurs, that crypto has togo into what is called an
individual wallet and thatwallet holds the crypto.
Okay, but you're in control ofthat wallet.
So if you want to spend thecrypto, you can spend it any way
you want.
If you want to buy a car, boat,house with it, you can do that
(04:53):
and transfer it to someoneelse's wallet and you have an
agreement between the two peopleon what happens when the
deposit hits and the otherwallet and that person is
eligible to get the property.
This is where the problem comesin, because if you buy
something from that wallet, ifthat's an asset, then you've got
(05:15):
a reporting responsibility.
You also have a reportingresponsibility if you're mining
crypto.
Okay, my understanding from myreading of the tax rules is that
when you receive your cryptofrom mining, that counts as
revenue to you.
So how many people out therewho have wallets still are
(05:38):
thinking still that their stuffis invisible?
No, I think it's very clearthat the federal government and
its friends in the intelligenceagencies have been able to look
at the blockchain and break intothat and to find what they need
(05:58):
to find, because there's toomany people who have stolen
Bitcoin or other coins, forexample, and have gotten caught
by the federal government andits affiliates.
The other thing is you have gotto track when things occur.
If you are investing incryptocurrency through an
(06:20):
investment company, they will beable to track for you when it
was purchased, when it was sold.
What was the net gain or loss?
If you're doing it from awallet, you have to do that
yourself because, as aregistered tax preparer with the
federal government, they willhave to make sure they're asking
you the right questions andgetting the information.
To properly complete thatreturn, you have to look at all
(06:48):
the incomes and gains that youhave involved with that
cryptocurrency account.
You don't want to mess this upbecause if you do, then you're
subject to the wrath of the IRSand potentially other
investigative agencies, like theFBI, for instance.
(07:08):
The other thing is you have awallet and you have a wallet
address.
That address is unique to you.
If you lose that address, youcan't access your wallet and
there's nobody who's going tohelp you because there's no
other entity out there that'sset up to help you access the
wallet if you lose the password.
So that's going to just staythere forever and you can't do
(07:29):
anything about it.
There's really interestingstories.
One was a gentleman had a harddrive that had all of his crypto
information on it and it gotthrown away and the hard drive
now based on what the originalpurchase price of the crypto was
.
It was in the billions, butthere's nothing that he can do.
(07:52):
He has no access to his wallets, he doesn't know the address,
doesn't know any of the codes oranything like that.
Don't forget about anythingrelated to fees and expenses
that can be written off on yourtax return.
The other thing is you have gotto work with a professional
(08:12):
who's tuned into what's going onin the crypto world, and the
reason for that is things arechanging and a lot of the major
investment companies you knowwho at one time kind of laughed
at this are now trying to figureout how to get in.
So you've got to know what'sgoing on so that you don't make
(08:32):
a mistake or you do somethingand you just because if it goes
wrong, you can't say that younever heard about it, nobody's
gonna care, you're in trouble.
So it's like really just call aprofessional check to see if
everything is fine.
The other thing is make surethat you file your return on
time.
(08:52):
In this case, a lot of times Itell people well, we need to
hold off a bit because we needto see if there's anything else
coming down the road.
I don't recommend that withthis, because you want to make
sure that you are informing themup front the status of your
Bitcoin or whichever coininvestment.
Okay, and please make sure thatthe return you could file a
(09:18):
little late, but it's got to beaccurate.
I prefer that it's on time, butthe end of the day is got to be
accurate.
You don't want a letter comingback saying that you made a
mistake in a calculation, wherethis doesn't seem right, because
the key is the IRS is focusingon this.
So if you're doing somethingthat looks suspicious, you're at
(09:41):
the hey.
They could call you, have aninternal audit, ask you to
provide certain information tothem and God help you if the
thing is wrong.
So key thing is keep yourhistorical data, make sure that
you have your wallet addresssecurely located someplace so
(10:03):
that you can get to it, beconsistent on what you're doing
in reporting all income andgains and please keep thorough
records.
So, thank you very much.
Have a good day.
You've been listening to theCommon Sense Millionaire, where
you can learn how to go fromzero to a million using common
(10:25):
sense solutions to everydayfinancial issues.
Make sure and subscribe to stayconnected for more content,
tools and help so you canadvance towards your financial
goals.
If you need assistance or havequestions, leave a comment or
you can email me at George atcommonsensemillionairecom.
Welcome to the Common Sense Millionaire, where we
work to promote your financialadvancement in knowledge process
and education so that you andyour family become financially
secure.
This is the place I shareCommon Sense Action Steps that
you can take today to assistyour financial advancement.
So sit back, grab a drink andlet's get started.
(00:23):
Common Sense Millionaire, hereToday we're going to talk about
crypto.
That's all I hear about it'scrypto.
Oh, I want to get into crypto.
I want to do crypto, right?
Ah, how do I do crypto?
That's the question I neverreally hear.
The question is not just how doI do it.
The question is how do I do itproperly from a tax perspective?
(00:45):
Because I can guarantee you, irsis looking for people who have
crypto who think that they areinvisible from detection.
Surprise, you're not Okay.
It's very clear that the FBIand other government agencies
(01:05):
can track you down a lot easierthan you think I know.
You all see a lot of theseheadlines about thefts of crypto
10 million here, 20 millionthere, 30 million there.
What they don't tell you a lotof the time is that most of that
money has been recovered.
So how this can be, as one ofmy teachers used to say, if
(01:26):
you're getting into cryptobecause you think that nobody
can find you or that nobody canunderstand what you're doing,
okay, that's the falsity andyou've got to be careful.
So some of the issues are let'sstart from the tax perspective,
because that's where people'srisk is in crypto assets.
Let's start with who isdefining what crypto is from a
(01:51):
tax perspective.
That's your friends at the IRSyour friends, not necessarily my
friends.
They've published a publication2014-21 that defines exactly
what cryptocurrency is.
The IRS has claimed, or has putin its notice, that crypto is
(02:14):
to be treated as property not ascurrency or not as a security,
but property.
The fight going on in thecrypto world right now is the
IRS has defined it as property.
However, other organizations,especially governmental
(02:35):
organizations, are wonderingwhether or not it should be
classified as an investmentsecurity.
We don't really have time toget into all of the aspects into
making that a security, but weshould anticipate in the next
few years some type ofreconciliation as exactly how
(02:56):
crypto should be treated from atax perspective.
It may change, it may not, butat this point we just don't know
.
Now, the problem with crypto ispeople believe that they're
anonymous.
So when you have the crypto,either you have it in one of two
ways.
The first way is you'repurchasing crypto assets through
(03:21):
an investment company One ofthe big ones, like Goldman Sachs
or any of the other investmentcompanies there.
When you do that, that foldsinto their reporting mechanism
so that at the end of the yearyou'll get a 1099, which will
specify what you purchased thatcrypto asset for, what you sold
(03:44):
it for, and either you had again or a loss.
That gain or loss are treatedas either a long-term activity
or short-term activity.
So if it's a long-term activityand you lose money, you get a
partially, or you may beeligible for some level of a tax
deduction for that loss.
(04:07):
Now for the purist work with thefantasy that crypto allows them
to work in an invisible world.
That's not detectable.
So when they receive cryptobecause they may be involved in
a mining activity or somebodymay have given them crypto for
the purchase of an automobile,for example, right, well, when
(04:32):
that occurs, that crypto has togo into what is called an
individual wallet and thatwallet holds the crypto.
Okay, but you're in control ofthat wallet.
So if you want to spend thecrypto, you can spend it any way
you want.
If you want to buy a car, boat,house with it, you can do that
(04:53):
and transfer it to someoneelse's wallet and you have an
agreement between the two peopleon what happens when the
deposit hits and the otherwallet and that person is
eligible to get the property.
This is where the problem comesin, because if you buy
something from that wallet, ifthat's an asset, then you've got
(05:15):
a reporting responsibility.
You also have a reportingresponsibility if you're mining
crypto.
Okay, my understanding from myreading of the tax rules is that
when you receive your cryptofrom mining, that counts as
revenue to you.
So how many people out therewho have wallets still are
(05:38):
thinking still that their stuffis invisible?
No, I think it's very clearthat the federal government and
its friends in the intelligenceagencies have been able to look
at the blockchain and break intothat and to find what they need
(05:58):
to find, because there's toomany people who have stolen
Bitcoin or other coins, forexample, and have gotten caught
by the federal government andits affiliates.
The other thing is you have gotto track when things occur.
If you are investing incryptocurrency through an
(06:20):
investment company, they will beable to track for you when it
was purchased, when it was sold.
What was the net gain or loss?
If you're doing it from awallet, you have to do that
yourself because, as aregistered tax preparer with the
federal government, they willhave to make sure they're asking
you the right questions andgetting the information.
To properly complete thatreturn, you have to look at all
(06:48):
the incomes and gains that youhave involved with that
cryptocurrency account.
You don't want to mess this upbecause if you do, then you're
subject to the wrath of the IRSand potentially other
investigative agencies, like theFBI, for instance.
(07:08):
The other thing is you have awallet and you have a wallet
address.
That address is unique to you.
If you lose that address, youcan't access your wallet and
there's nobody who's going tohelp you because there's no
other entity out there that'sset up to help you access the
wallet if you lose the password.
So that's going to just staythere forever and you can't do
(07:29):
anything about it.
There's really interestingstories.
One was a gentleman had a harddrive that had all of his crypto
information on it and it gotthrown away and the hard drive
now based on what the originalpurchase price of the crypto was
.
It was in the billions, butthere's nothing that he can do.
(07:52):
He has no access to his wallets, he doesn't know the address,
doesn't know any of the codes oranything like that.
Don't forget about anythingrelated to fees and expenses
that can be written off on yourtax return.
The other thing is you have gotto work with a professional
(08:12):
who's tuned into what's going onin the crypto world, and the
reason for that is things arechanging and a lot of the major
investment companies you knowwho at one time kind of laughed
at this are now trying to figureout how to get in.
So you've got to know what'sgoing on so that you don't make
(08:32):
a mistake or you do somethingand you just because if it goes
wrong, you can't say that younever heard about it, nobody's
gonna care, you're in trouble.
So it's like really just call aprofessional check to see if
everything is fine.
The other thing is make surethat you file your return on
time.
(08:52):
In this case, a lot of times Itell people well, we need to
hold off a bit because we needto see if there's anything else
coming down the road.
I don't recommend that withthis, because you want to make
sure that you are informing themup front the status of your
Bitcoin or whichever coininvestment.
Okay, and please make sure thatthe return you could file a
(09:18):
little late, but it's got to beaccurate.
I prefer that it's on time, butthe end of the day is got to be
accurate.
You don't want a letter comingback saying that you made a
mistake in a calculation, wherethis doesn't seem right, because
the key is the IRS is focusingon this.
So if you're doing somethingthat looks suspicious, you're at
(09:41):
the hey.
They could call you, have aninternal audit, ask you to
provide certain information tothem and God help you if the
thing is wrong.
So key thing is keep yourhistorical data, make sure that
you have your wallet addresssecurely located someplace so
(10:03):
that you can get to it, beconsistent on what you're doing
in reporting all income andgains and please keep thorough
records.
So, thank you very much.
Have a good day.
You've been listening to theCommon Sense Millionaire, where
you can learn how to go fromzero to a million using common
(10:25):
sense solutions to everydayfinancial issues.
Make sure and subscribe to stayconnected for more content,
tools and help so you canadvance towards your financial
goals.
If you need assistance or havequestions, leave a comment or
you can email me at George atcommonsensemillionairecom.
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy And Charlamagne Tha God!
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.