Ep. 137 | Digital Asset Reporting 101 - Teaching Tax Flow: The Podcast

Episode Transcript
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John Tripolsky (00:02):
Welcome back, everybody, to the Teaching Tax
Flow podcast. We know we areyour favorite tax related
podcast out there in theecosphere. So today, episode
137, we are exploring digitalassets and how the IRS treats
these. So before we do it, asalways, let's take a brief
moment and thank our episodesponsor.

Ad Read (00:25):
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Hey, everybody, and welcome back to the Teaching
Tax Full podcast. Obviously, asyou've seen in the title, read
in the show notes, your friendtold you, we are here today
talking about digital assets onezero one and how the IRS looks
at those, how you're expected toreport on those, etcetera,
etcetera. Again, I do not havethe information. If anybody's

(01:45):
watching this and you know thisvery well, I love being the
dumbest guy in the room, whichis why we bring the good guests.
And I guess we bring ChrisPacquero back too.
Welcome to your own show, sir.How are doing today?

Chris Picciurro, CPA (01:56):
It's great to be back, John. I am stoked
about today's topic and ourguest. It's it's one thing to
have, and we have some amazingguests come on throughout the
last, whatever, 30 some episodeshere, but it's also great when
we have fellow tax professionalscome in. And as you know,

(02:17):
whenever we bring in a taxprofessional, it's going to be
someone that is at the levelthat they teach their peers.
Because it's one thing to be atax professional.
It's another when you teach theteachers, then you are you
simply master something. So veryexcited to have our guest today.
This is a topic that, as youknow, John, I'm not an expert

(02:38):
in, hence why we've beensearching for the right person,
and I'm so excited to to havethat guest. We are gonna talk
about digital assets one zeroone, definitely a elevated
enforcement level by the IRS.That doesn't mean you should be
afraid of them.
That doesn't mean you shouldn'tbe involved with them, but we're

(02:59):
gonna get right to that. Excitedto introduce our guest, Ty
Gaines, enrolled agent. She is,super respected in our industry,
a presenter. If you follow herLinkedIn, her LinkedIn will be
connected to this. She isspeaking on a weekly basis and
adding regional and nationallevel.

(03:20):
But also fun facts that I foundout that she has given back to
this profession. She was namedenrolled agent of the year in by
the Virginia Society of EnrolledAgents a few years back. She was
also the president of thatorganization and really involved
with the NAEA, which is theNational Association of Enrolled

(03:41):
Agents. She also was a mentor ofthe year for that organization,
has her own tax practice, is theproject manager for Token Tax
LLC, which we're gonna talkabout as well. So honored to
have you.
Ty, welcome to the Teaching TaxSlow podcast.

Tynisa (Ty) Gaines, EA (03:57):
Well, thank you for having me. Every
time somebody reads my bio, I'malways like, wow. That girl is
awesome. So I guess I'm me.

And Ty, that that intro was so long. I feel
like I was out of breath asChris was reading it. Mean, I
thought myself

like too, but it's like, hey. That that
that person That

was a nice little succinct tie up. I
like it. Sounds great. Thankyou.

Oh, one more fun fact, John, for you. Ty
is a avid

Oh, I know where this is going.

Nope. She's an avid yoga. She's an
avid she practices yoga, butalso she's such a physical
specimen. I'm sure she playspickleball, which I know she
does play. Absolutely.
A game one Absolutely. And she'sgonna get us on the yoga mat,
and that's gonna be ugly. We'regonna need some bandages and

(04:51):
some and we're gonna need someice packs, John.

I have no words.

Have no words to do. You gotta play
pickleball, the whole thing.

Oh, yeah. Alright, Ty. We're gonna
rearrange your bio, and we'regonna have some fun with that
here eventually. So just k. Isee where this is going.

Well, let's jump in. I'm sorry, Ty.
Yeah. Tell us a little bit aboutyourself. I know I gave you did
the introduction, but what ledyou into becoming a tax
professional and thenspecifically into working in
that niche of digital assets?

So real quick, I guess, the I think I've
been a tax professional. I'vebeen an enrolled agent since
02/2007, but I believe I startedmy first tax season in 02/2002.
So, sadly, I can do all complextax things, but the math on that

(05:46):
is really throwing me off.Twenty three years, I don't
know, something like that. I'vebeen preparing taxes.
So I think I started digitalassets around 02/2019. So I have
been in the tax field for awhile and was actually getting a
little tired of regular tax. Ithink the Tax Cuts and Jobs Act
had just passed. We had all thisnew stuff, and then there was

(06:08):
something like cryptocurrency.And I'm like, hey.
What's that? You know? So Ikinda took some classes, some
trainings. I actually worked fortwo different startups before I
ended up at TokenTax, which wasa new startup at the time. We've
grown tremendously since then,probably because I worked there.
But, no, seriously Exactly. It'sit's it's been a, you know, it's

(06:29):
been a ride. The the cryptomarket has been, as we can talk
about as we go up and down andaround, and I personally didn't
invest in it until 2020. I wannasay I jumped in at COVID when
the markets dropped, is when Iinvested in in, like, Ethereum
and Bitcoin. And and if I toldyou what I paid for them, I

(06:50):
wanna say Ethereum was, like,$200, and it's over 2,000 now,
which is even low for for itsstandards, but it's over 2,000
now.
And then Bitcoin was maybe 6 or7,000. It's in the nineties now.
I I wish I could have bought awhole one. I didn't because that
seems so high. Like, $7,000 fora coin seemed ridiculous back

(07:11):
then, and now it's almost ahundred thousand.
Right? Because you're buyingstocks. Like, I buy Ford, and
it's $8. And then you saysomething like Bitcoin, and it's
8,000. You're like, I'm notbuying that.
So you buy you buy parts ofcryptocurrency. You don't buy
the whole thing. Well, unlessyou're rich. I'm not. But, you
know, you buy you buy fractionsof it.

(07:33):
So when you buy Bitcoin, you buypoint zero zero zero zero
whatever of a Bitcoin, and youspend a hundred dollars and
that's what you get. But, yeah,taxes in general, I just I was a
military spouse. We traveled alot. It's a great thing to
travel with, and I ended upbuilding a virtual practice as a
result of having to travel as amilitary spouse. So that's kind

(07:56):
of where it started and where itwhere it flowed to.
Oh, really? So I I work remotelystill, yet it's more remote
because of technology. Right? Soat first, it was like people
dropping stuff off at the house,and if you moved, you could keep
the clients with you. Now it'sall completely virtual.
So Uh-huh. It's great.

Well, I have a question for you that no
one jump in. I promise. A littlebirdie told me that you are an
alum of the University ofIllinois.

Oh, of course. I l l.

And you're so I went to Michigan State, so
we got big 10 going for

us. One Big 10.

Yes. The the one program we don't love on
this show is the University ofMichigan, but that's alright
because John lives outside AnnArbor. So we're not a big
Michigan fan here.

Oh, don't worry. People people here are pretty
used to not being liked, youknow, because it's always the
the popular people and thereally good ones. They they take
a lot of heat. It's all good. Ididn't

know this,

so I'm not smart enough.

Also, you got your I should have mentioned
this. You got your master'sdegree from Troy University. And
guess what? That's not in Troy,Michigan. That's not in Troy,
New York.
It's in Alabama. Right?

It's in Troy, Alabama.

Yeah. That's that's so we drive
through there. I live inFranklin, Tennessee, which is
just South of Nashville, Fifteenmiles. So when we go to the
beach, we go right through whereTroy University is.

Have you seen the campus? It's the most
beautiful campus in the state,they say, and it is a really
pretty campus. I didn't actuallyattend on campus. It wasn't
until two years ago that Iactually visited it. I went
through the military.
It was a you know, through themilitary bases, you could go to
the schools long distancedistance learning, I guess, back

(09:38):
then. It wasn't really remote oronline, but they had classes on
the bases that were linked tothe university, and that's how I
attended. But a couple yearsago, my son, who's active duty
military, army, Apachehelicopter, by the way, was in
aviation school at FortNovicell, and it's, like, thirty
minutes from the the campus, sowe drove through. So I took

(10:01):
pictures, like I graduated fromthere in 1999, so I took
pictures, like, twenty yearslater. Like, yeah.
It's why we made it to thecampus.

Token tax goes goes public and and you're
on the stock exchange. You'regonna ring the bell, and then
and then there's gonna be a tiegains. There's gonna be a statue
next to the football stadium byall the all the stars.

So I love it. Because we definitely
went to the field. I haveselfies. I can tell you of us on
the field. That was the thewhole thing.
So

yeah. And we know why Chris has a bit of that
campus because every time hegoes to that state, he stops at
Buc ee's for about two and ahalf hours.

Oh, no.

That's his favorite place.

A Buc ee's ten minutes from my house
here. So yeah.

U of M campus, University of Michigan, and Buc
ee's. Chris would be an absoluteparadise.

I'm I'm more of a wah wah or Busy Bee
person, but that's alright.

I love wah wah. I love wah wah.

Me too. Not a fan of Buc ee's, but you
know what? That's okay. I liketo go against the grain a little
bit. Just just to you know?
Well, let's jump into this thethe the digital assets. And, you
know, a lot of time there's alot of confusion, right, from
taxpayers thinking that they youknow, that that that how do I

(11:09):
report that on my tax return?And, let's chat through, like,
why do people you know? I knowthat the the first the question
on the first page of the return,which actually the IRS slipped
in there the last few years,right, about digital assets, and
then it changed of how you'reeven supposed to answer that.
But tell us about why why dopeople need to report the

(11:30):
digital assets on their taxreturn?

So they are considered property, and
they hold value. So, generally,the IRS wants money for anything
you sell that's valuable. It'sfunny because if you sell
something at a yard sale, it hastechnically decrease in value,
so you generally don't have toreport that unless you sell it

(11:53):
on eBay, in which case you dohave to report it. But, you
know, the decrease in valueversus increase is the thing
here. And although crypto canincrease and decrease, it is
similar to a stock where you'rebuying it as an investment.
So your intent when you buy itis to make money, you would
hope. Right? So because of that,in general, you have to report

(12:16):
it. So any sales, anytime yousell it, anytime you trade it or
buy it, or guess what? Starbucksaccepts it.
If you buy coffee at Starbucksand use cryptocurrency to do so,
that is a taxable event that youmust report on your tax return.
Now that's the crazy thing.

Segue because you you nailed it. A lot
of times people say, well, Ijust exchanged it. I didn't take
it out of my account. Well, justlike if you're you're you you
have a brokerage account andyour portfolio rebalances and
you sell one stock to buyanother one. That's that's
That's Maybe that's gonna bereportable.

It is. And then it's very close,
although not a security likestock, very much like a stock in
terms of handling on your taxreturn. So if in fact you do buy
stocks or are familiar withstocks, that process is exactly
the same. It's reported on aform eighty nine forty nine
individually. It you report ifit's short term, which means

(13:14):
you've had it for less than ayear, or if it's long term,
which means you've had it forlonger than a year.
And that the reason you would dothat is because taxes are more
favorable for long term gainsversus short term gains. And
Right. We can talk about thatlater, but the point is you have
to report it, and it isgenerally taxable. If you have a

(13:35):
loss, that could help you, butyou still have to put that on
the tax return. Right.

So let's talk yeah. Let's talk about that
where so we know that, likeyou've said, the digital assets
are property. They're notforeign currency. They are
reported just like you wouldsell a mutual fund or a stock.
What are some of the bestpractices for for people or
taxpayers to keep track of theircost basis, and can they u what

(14:01):
kind of methods are available?
Because we know what stock andmutual funds you can do FIFO,
LIFO, or specific identificationor an average. What what would
you recommend?

So same with crypto. Specific ID, can
choose. First in, first out,FIFO. Last in, first out. Or
highest in, first out is thethird option, which generally
helps people the most, I think,is what most of our clients
generally choose because it'smore of giving them a choice in,
I'll sell this lot and not thisone and things like that.

(14:34):
The the let's see. What was thequestion? Because I got Well,
that's right.

So can yeah. How can they keep track of
cost basis?

So how do you keep track? So there's a
new law that actually says youhave to keep track. Mhmm.
Whereas before, even though youshould have, many people didn't.
So going back to when the 8949was born in 02/2010, cause a lot
of people don't realize that the8949 for reporting stocks is not

(15:02):
that old.
I've been doing taxes longerthan the eighty nine forty nine
existed. Used to be able to putit on a schedule d, but now
because you but back in 02/2010,there was a law that basically
said brokers have to report costbasis for stocks. And so that's
when we start getting the newstock, the $10.99 b that's a

(15:24):
code a short term covered, codeb short term not covered. Same
thing is happening with crypto.There was a broker bill passed
last July, t d 10,000, thatbasically said brokers are gonna
have to report cost basis forcrypto.
They don't know cost basis. Soit's your responsibility as a

(15:45):
taxpayer to actually keep trackof your tax basis because you
are gonna actually have to giveit to the broker. And when you
don't give it to the broker,what happens is they just report
the proceeds, and you're taxedon the total proceeds even
though you have basis becauseyou paid something for that

(16:05):
item. So the best way to trackthis, obviously, is to use
crypto software, and I work fora crypto software company, duh,
token tax. So we keep track ofyour your assets.
We track your bases. If we don'tknow it, we can look it up.
There everything is stored onthe blockchain, so we can look
for basis. So you can payprofessionals any software. I'm

(16:28):
gonna plug mine because I workthere, but you can look crypto
software companies, this is whatthey do.
So they all do the same thingwhere they look they help you
find any missing cost spaces.Usually, that occurs when people
have different exchanges,different wallets, multiple
things, and they're like, oh, Ibought it from this wallet. I

(16:49):
transferred it to this. I don'tremember when I bought it. You
should keep track of everything.
If you're good with Excel, youcan probably do it in Excel if
you don't have a lot oftransactions. But if you do or
you do more complextransactions, you should get
crypto software to help youtrack your base.

That you you took my next question from
me because we have to remember,if you're listening to the well,
I always say that, John. Right?Because you have to be
listening. Why do I ask youlisten? You're freaking
listening or watching.

We're gonna change it to be like, while
you're listening.

While you're listening.

And then a cowbell goes off.

Your the IRS will credit you with zero
cost basis. It's yourresponsibility to track that
basis. And quite frankly, youmay have bought these assets ten
four or five years ago when sothat's why you need that
software. And, again, TokenTaxis gonna be a very big help for
you. We're gonna put those linksin the in all the notes.
But you're responsible because Ican't tell you how many times,

(17:47):
and this has happened with otherthis happens all the time with
the CP 2 thousands, which isyour most common IRS notice.
Someone says, oh, I sold I soldmy Bitcoin. Yeah. Why didn't you
let's let's say I'm the taxprofessional. Oh, okay.
Well, why didn't you tell me?Because I didn't make no money,
and they always say Right. That.Right?

They

nobody makes money. But guess what?
It's still reportable in the IRSnow. It's gonna say, $10,000
sale. I'm gonna assess yourshort term capital gain rate
with zero basis.
You get the crappiest treatment,and it's your responsibility to
prove the better treatment. Sodo that right away and keep
track of these things.

Keeping records.

So, Ty, you mentioned something that was
I want I've first question wouldbe is so, typically, that's
gonna get reported on the$89.49. You mentioned the
Starbucks example. Let's saysomeone is owns a coffee shop in
a in a hip cool area, and youaccept yeah. You know, you
accept Bitcoin. How does thatget reported?

(18:46):
Let's say you're a soleproprietor.

If I'm I'm the sole proprietor Yes.
Accepting it as payment Yes. Ihave to report that as income as
well as fair market value uponreceipt. So whatever it's worth
at the time that I receive it isordinary income to me as a as a
business owner.

Right. And then let's say you keep it in
your in your your wallet or orsomething as in the business,
and then subsequently sell it,you might have a gain or loss
there. But yeah. And and there'ssome and there's actually gonna
be some real estate transactiondone with digital assets coming
up. Because think about this.
If a lot of your wealth is indigital assets, especially for
that younger generation, it'snot like you can go to the

(19:26):
mortgage company and say, hey.I've got all this money in my
wallet. You might have to paycash for a property, but really
cash. And and when you the pointis is once that digital asset
leaves your ownership, it isconsidered transferred and
reportable

Yes. By

Chris Picciurro, CPA: Absolutely. House, a car, (19:41):
undefined
coffee. Anything. Anything. Andyou

could actually have a loss on it. You
could have paid, you know, $10for this cryptocurrency, and
then Mhmm. It could havedecreased in value by the time
you you you you sold it, andthen you purchased something
that wasn't even worth that.Like, it could be that you do
lose money. It just doesn't meanthat you don't report it.

I mean, you could very well have a
situation. We were talking aboutthis in some of our educational
seminars for the tax pros. Let'ssay you had a young person that
bought $5,000 worth ofcryptocurrency and went up to a
half a million dollars. Theysell it, pay cash for a house.

Mhmm.

They gotta remember, you've gotta pay tax
on that. Hope it's probably along term gain.

Yeah. Long term, hopefully, for five
years.

Shingle off the house and pay the tax.
Right? You're gonna have ataxable event.

Yes. You are. Yep. And it yeah. It it
people you're gonna have to paythe tax.
You have to put that aside. Apart of the problem we have at
TokenTax, where we're preparingtaxes, is that the markets go up
and down. Right? So people filetheir taxes one year. Markets
are up.
They pay, you know, millions ofdollars on taxes. The next year,

(20:57):
the bill is due. Guess what?Value went down. They can't pay
it because you're talking aboutthe difference in we cut off the
tax year 12/31 and the value ofBitcoin at 12/31 may have been a
hundred thousand dollars.
We filed taxes April 15 and it'sdropped to $80,000 or less or
whatever. We have a loss. Theportfolio balance drops and

(21:19):
people can't pay the taxliability because you're taxed
at the time, the fair marketvalue at the time. Digital
assets can be volatile and canup and down as they have been
even just this year. And so youcan you can definitely lose lose
money or basically run short.
When you were rich last year,you could be poor this year.

It's volatile. That is a great way to
put it. Well, Ty, I'm gonna wrapthis up because I guarantee you,
we are go John's already makingsome notes over there. It's rare
that he's paying attention halfthe time. No.
He I know. He's the general'stalking about anymore. I well,
we'll work on those skills,We'll get back you. But I know

(22:02):
we'll have Ty back on. We'regonna we're gonna we're gonna
we're gonna entice her to to addsome content to our YouTube
channel.
But to wrap

it up on

this one zero one, digital assets one
zero one, can you give us just acouple minutes on the
aforementioned new reportingrequirement called a ten ninety
nine DA? Stands for digitalassets. Many people are aware of
ten ninety nine NECmiscellaneous interest dividend.
What are the rules with the tenninety nine DA that are gonna be

(22:32):
new here for the 2025 tax year,which would be filing in '26 as
as we and we'll and yeah. Canyou leave us with those those
rules?

So the ten ninety nine d a will be
similar to what I was discussingthe stock's ten ninety nine b.
It's not as cute. It's not asneat. It doesn't look as good,
but it reports the same thing.The name of the asset, the date
it was purchased, the date itwas sold, the cost basis, the
sale, That type of informationis the information taxpayers

(23:05):
will need to have for their taxpreparer to put that information
on their $89.49.
So those forms will come out.The problem with them that I see
so far is that there may bemultiple forms where the ten
ninety nine b would just saycode a, code b, k code c, and
they would all be on one form.It looks like the digital ten

(23:28):
ninety nine d a is set up to putone code per form. So the codes
are like GHJKY. Yeah.
Y. And that's like the unknownone. But when that code is on a
form, like, there's only spotfor one code. So, like, anything
short term could be on one form,and then something long term,
even though it's the same stock,will be on a second form. So the

(23:51):
problem with that form is thatthey're killing trees for one.
But, you know, it it it could beto where do we have everything
because there's multiple pages.And we know in the digital age,
clients like to give you pageone of something. So as a
taxpayer, give all the pages ofeverything you receive and make
sure you receive all pagesbecause this is a new thing. And

(24:15):
they don't have to report costbasis in 2025. That was actually
pushed to 2026.
So a lot of the forms may bemissing cost basis, which is
another reason taxpayers willneed to keep track of that so
they can give that informationand say, no. This is what I paid
for it, and tax professionalswill be able to use that basis

(24:36):
to help lower any gains.

In that form, I I you know, I looked at
a draft of that form becausethat's because I don't have a
very good social life. Butthey're asking for, like, you
know, short term, long term,ordinary. There's a lot of
information on that form

It is.

That that's gonna get really tricky.
But I I can't thank you enoughfor joining us here, and and I
can't wait to have you back andget some more information. Go
ahead, Johnny t. I know you're

Oh, I'm itching, man. I'm sitting in here in my
head just playing it backbecause you're let you're you're
going off with all those lettersthat are on that form. And in my
head, I'm trying to think of a areally dumb way to do, like, a a
version of the YMCA.

Oh. You know, for

the village people where it's like, bee,
sing, bee, bee, What? Yeah.Crazy with it. They're that's
why I'm here. Right?
The poor comic relief.

For sure. That's why. And I'm here
for it, as you can see.

Well, I'm glad you are. We can get rid of
everybody else. Chris and Gongknow. But, honestly, Ty, thank
you so much for joining us. And,obviously, as Chris has said
multiple times too, we're we'regonna have you back on.
You don't have a choice. Youknow?

We're just

gonna find you. You know, we'll we'll take the
blockchain approach. Right?We'll do a little bit at a time,
and then we'll we'll get youback. But for anybody that is
listening to this as well, asmentioned a little bit earlier
on too, we will drop Ty'scontact in the show notes as
well as anywhere you'relistening to this.
Obviously, subscribe to it.You'd be on the lookout for some
more content we're gonna putout. But, also, Chris, I don't

(26:02):
know if you mentioned it, but ifyou did, awesome. I'll say it
again. Hop on the YouTubechannel.
If that's if you're watchingthis on YouTube, awesome. Don't
be lazy. Hit the subscribebutton. It's somewhere, you
know, in the y m you know, notwith the, like,

Madonna logo here. Subscribed. I found
it.

So Good. Good. You can come

back then.

You can come back. But, yes, anybody that's
listening to this, reach out tous. Reach out to anybody, your
tax pro, anybody you have inyour proverbial Rolodex, and
they will help you out. This issomething you do not wanna
tackle necessarily by yourself.But if you do, do a little bit
of a DIY with this.
Hopefully, this helped you alongthe way. So as always, we will
see you back here again nextweek. Same day of the week,

(26:40):
different date, completelydifferent topic. Have a good
week, everybody.

Disclaimer (26:49):
The content provided is educational purposes only. We
encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough Cabin Advisors, a
registered investment advisor.Securities are offered through
Cabin Securities, a registeredbroker dealer.
The content of this podcast doesnot constitute an offer of

(27:10):
securities. Offerings can onlybe made through an offering
memorandum, and you shouldcarefully examine the risk
factors and other informationcontained in the memorandum.

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Ep. 137 | Digital Asset Reporting 101

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