Crypto and Taxes: Do You Have to Address This With The IRS? Yes. Yes You do

February, 25 2022

PHOTO CREDIT: Form 6173 Virtual Currency Reporting–IRS.gov

Crypto and Taxes: Do You Have to Address This With The IRS? Yes. Yes You do.

One of the beautiful things about decentralized currency and trading has been the silky gray areas that left it somewhere between the comfort factor of a home-cooked meal, and the rough and ready “anything goes” proposition of a steak over a cowboy fire in the wild west. But the comfort and freedom of that decentralization can be at risk, once the IRS gets involved.

For the first few years of its existence, crypto enjoyed an anonymity that made it attractive to all kinds of characters: white hats and blackhats alike. So the good guys and bad guys, no matter who they are or where they come from, enjoyed some degree of separation from the general population, at least as it regarded their activity in virtual currency.

There was also a time when crypto seemed suitable only to those with a pretty good head for tech; early adopters of platforms that might have been risky or difficult to track and manage. These early adopters saw the benefit of crypto because, frankly…the tax authorities didn’t appear to take them seriously. Rules and regulations governing the exchanges were all but nonexistent.

But given the assurity of two certainties in life–death and taxes (with taxes even possible after death), it’s important to understand that the US and other governments are devoting some serious resources to tracking and engaging with crypto users who fail to report.

Trading, interest, fees, mining payments/acquisitions–all platforms and activities are starting to get serious attention from taxing authorities. In the case of the IRS, it all comes down to interpretations of profit.

The concept of profit…and what that means in crypto

To the IRS, the acquisition of funds or goods has a set of governing principles that categorize how they define what your investment is worth, and how that affects the paradigm under which those funds are taxed. In the case of cryptocurrency, the IRS calls your assets “property”.

It's a distinction that matters. As property, your profit margin is subject to capital gains taxes, just as it would be on the stock market. So if you spent 10 dollars on stock, for example, and if you sell off at fifteen bucks, the five bucks you made after your initial investment counts as a capital gain.

How long you hold your coins may matter, now

Your tax liability under capital gains reporting can fluctuate wildly. It depends a great deal upon your other investments, your current tax bracket, and the tax bracket you would be subject to under the income counted as capital gains.

The distinction, therefore, between long and short term capital gains herein applies.

“If the holding period was less than a year, you pay the short-term capital gains tax, which can range from 10% to 37% in the United States, depending on the tax bracket you happen to be in. If you held the position for more than a year, you are subject to the more favorable long-term capital gains tax. The long-term rate can be 0%, 15% or 20%, depending on your tax bracket.” (CNBC)

If you mine crypto, there could be more red flags

The complexity of adding capital gains reporting to the IRS doesn’t stop with profit or loss reported from the exchanges.

If you are mining crypto, you are doing work for revenue. And as such, your activities are subject to reporting just as any self employed or business agency must do. The value of your income and assets is based on the fair market value of the coins in question. There are write offs, but pitfalls with each do exist in those gray, unclear areas as the IRS catches up and the rules remain in flux.

There are varying implications, depending on your involvement. If you are part of a consortium, club, or other group that does the investing, the liability and amount to report may be lower, but the IRS may view this as a hobby—which means you have limited options for reporting or claiming deductions.

Yep. You need to keep good track of your transactions. Seriously.

It seems counterintuitive for anyone invested in crypto to prepare proof of transactions for reporting to governing authorities. However, every transaction can be a trigger point for the IRS, which has openly declared its intention to take further interest in your activities in crypto.

Your individual engagements, whether your crypto company sends you a statement or not, are thus your responsibility to report.

The exchange of crypto gets dicey because if the value of one crypto changes, and your purchasing power of the new crypto is increased, that is considered by the IRS to be—you guessed it—a capital gain.

That makes it highly taxable.

IRS activity related to crypto

While lax IRS rules and admittedly obtuse requirements for reporting were once an issue for the agency, the Biden administration is quickly working to close any reporting loopholes or ambiguity. It wants to know if you are engaging in crypto, and perhaps more disturbingly, it wants to know what you’re doing with that engagement.

CNBC experts report that “The agency recently ramped up efforts to subpoena centralized crypto exchanges for information about noncompliant U.S. taxpayers”. Experts across the spectrum warn that the IRS could go back a number of years to scrutinize reporting. Unfortunately, they’ve gotten a number of favorable judgments to do so. “This spring, courts authorized the IRS to issue John Doe summonses to crypto exchange operators Kraken and Circle as a way to find individuals who conducted at least $20,000 of transactions in cryptocurrency from” as far back as “2016 to 2020.” And “in 2019 the IRS announced it was sending letters to more than 10,000 people who potentially failed to report crypto income” according to CNBC. The letters come in the form of the dreaded notification numbered 6173, as pictured above.

Those letters, according to experts in tax law, are just the tip of the iceberg. The Biden administration is aggressively training IRS agents to identify and track down crypto engagement and any related transaction(s). These lookbacks on prior returns can trigger investigations into any activities that may have gone unreported.

The move on crypto doesn’t stop there

“Another potential major blow to crypto holders: Biden’s proposal to raise the top tax rate on long-term capital gains to 43.4%, up from 23.8%” claims CNBC consultants. This includes Biden’s attempt to combine short and long term gains, with a higher percentage of tax liabilities on the table if successful. “Crypto gains are being taxed as any other type of gain in assets, either at long-term capital gains or ordinary rates. President Biden has proposed to eliminate the difference between the two.”

The upshot here is that while crypto engagement has its share of benefits, there are aspects of it that are not subject to reporting. These include transactions that exchange crypto for dollars, moving crypto between wallets and exchanges (though the IRS is monitoring at least some exchanges; a thing worth noting). Crypto that was gifted to you at a value of under fifteen thousand dollars and donations in crypto (based on the fair market value of the crypto at the time) may also slip under the scope of the reporting requirements.

There are a number of new regulations, but crypto remains strong
Despite a number of changing rules and redirects in IRS attention, the state of crypto remains strong, and currencies such as CloudCoin continue to show robust engagement. To be sure, there are positives and negatives to any central authority’s attention to a decentralized currency. Rest assured that CloudCoin remains committed to keeping you informed, with complete attention to your rights and responsibilities as a cryptocurrency participant. CloudCoin remains committed to assuring the safety, security, and ease of use that you have come to know and expect. Decentralization may have the attention of governing authorities, but the availability of your crypto dollars wherever you are in the world will always assure your access to your CloudCoin when you need it.

Lighten Up, Francis

February, 18 2022

Lighten Up, Francis!

Why Crypto Investors Tire of The “Cult” Narrative

The Financial Review touts the headline: “Inside the cult of crypto: how digital money ‘priests’ treat sceptics”, arguing that “cryptocurrencies have soared in value to such a level that a rigid dogma has developed around them and dissent is treated as blasphemy.”

Australia’s Spectator quips that there are two rules in crypto, likening it to the classic Brad Pitt movie Fight Club: “The first rule of Crypto Club: You constantly talk about Crypto Club. The second rule of Crypto Club: You constantly talk about Crypto Club.”

On CNBC, former Paypal CEO Bill Harris, who left the company in 2000, declared on the network’s show Fast Money that “The cult” of crypto investors makes many claims —"that it’s instant, free, scalable, efficient, secure, globally accepted and useful. It is none of those things.” Of course, Harris was railing against Bitcoin, but he was referencing crypto in general, too.

Perhaps he didn’t know.

Unlike other cryptocurrencies, not weighed down by cumbersome blockchain protocols, CloudCoin absolutely is scalable. It is RAIDAtech secure, it charges no fees, transactions can happen in milliseconds, it requires no accounts, and can be accessed anywhere on the planet there is a connection to the internet. That most certainly makes CloudCoin useful (Apparently, Mr. Harris has been a little out of touch since he left the digital banking space, way back at the turn of the millennium).

So what gives with the pushback? While it’s true that crypto culture, at its spawning, was based on community action, it’s hardly a cult. Meet any individual steeped in the movement, and you’re likely to encounter a group of like-minded individuals, tired of two-tiered justice and the Wall Street lock on financial systems, who were finally cut a break. It’s just that simple.

So perhaps you’ll pardon our enthusiasm. It’s kind of like that, with early adopters.

You see, those of us involved in the crypto world are enthusiastic because for once, as those early adopters, we’re being rewarded for our investment, rather than shelling out money for otherwise useless gadgets and gizmos that don’t reliably pay us back. We’re inherently patient individuals, as a rule. We’re the kind of people who will wait in line for the new release of those gizmos, tolerate the invariable failures and quirks of the first line of a product offering, and embrace subsequent improvements as par for the course. This makes us the kind of investors capable of getting a thing off the ground.

That’s hardly a cultist mindset. That’s grit.

While it is true that crypto investors tend to be perpetual and enthusiastic optimists, it’s also true that we regularly recognize and discuss the ups and downs of our investment strategy and voice our concerns. When old-school economists and financial experts send out machine-gun tweets decrying that culture, it’s natural for those affected to push back. And when the pushback happens, suddenly, the traditionalists who appear to fear all things digital come out of the woodwork…loudly.

Take for example the rantings and infamous assertions of Nobel Prize-winning economist Paul Krugman, who declared crypto all but dead on arrival. Krugman takes particular umbrage with the resilience and nascent success of crypto investors, exasperatingly declaring that he has “… given up predicting imminent demise. There always seems to be a new crop of believers. Maybe just think of it as a cult that can survive indefinitely.”

Ouch. That almost felt…personal. And it almost looked like a backhanded vote of confidence. Looks like even Krugman has a sense that we'll be here a while.

The truth is that early adopters of cryptocurrency discuss crypto in positive terms because we see the potential and the progress of the systems we embrace. We are hardly empty intellectual vessels, brainwashed to “believer” status through the machinations of a charismatic leader who shills and fleeces followers with abstract dogma.

Speculations about “populist” investor psychology and ‘the identity politics of the crypto investor’ tend to purposefully overlook the tremendous diversity of groups of investors who come from all walks of life, income strata, cultural backgrounds, and spheres of experience.

Perhaps this “cultist” enthusiasm is demonized so overtly because it means that we’ve thrown open the door on the smoke-filled, crowded back rooms of the elitist investor good-ol-boys club, building a powerful consortium of everyday people who self-educate, actively participate, and engage with the economy in ways that Wall Street and centralized banks have never seen, and cannot control.

While we tire of that “cult” narrative, it may be time that we embrace it, instead. If “cult” means community and a culture of cooperation, self-empowerment, and freedom from the financial strangleholds that have kept Everyman’s wealth in check… we’re probably good with that.

To critics that appear more rabidly offended than they declare us to be positive…lighten up, Francis! It’s a brave new world.

And it may just be turning without you.

Regulatory Ambiguity: Does It Really Mean Market Confusion?

February, 4 2022

PHOTO CREDIT: US Federal Reserve Board of Governors, federalreserve.gov

Regulatory Ambiguity: Does It Really Mean Market Confusion

CBDC—central bank digital currency—is coming our way. As it does, several heavy hitting financial players are warming up to take a swing at shaping it, as they aggressively lobby for regulatory oversight. What it means to crypto and your investment in decentralized currency.

One of the key facets of cryptocurrency—its decentralization—is a tantalizing premise upon which the majority of crypto is based. Removing central authorities such as banks and government from the peoples’ assets and maintaining Data Supremacy is a big deal for any investors working to protect their financials.

Big Banking—that behemoth of crooked dealmakers—is always looking for an angle. And in crypto, it’s pushing for one. Lobbyists are frantically rallying for government regulatory control over crypto of all kinds. Big Banking, after all, is Big Brother’s best friend: it sees the people profiting without them, and wants to be sure to have a seat at the regulatory table. Here at CloudCoin, we’re well aware that those authorities are working to edge their way into the crypto market, and that—with them—they intend to bring regulatory controls favorable to their agendas.

But as Big Tech giants push us to do business inside the fast-approaching Metaverse, it’s important to recognize that, however dedicated we may be to the concept of a decentralized currency, regulation is coming. The US, China, and the EU are all on board for the creation of these CBDC’s, and traditional banks are working to accommodate it and profit from the exchange. Their influence on the policy thus affecting cryptos is surely a thing to watch.

We recognize that cryptocurrency such as CloudCoin has gotten the attention of big financial forces. Heavy hitters like Visa, Mastercard, Paypal and others have already begun facilitating crypto, and central banks are working at a frantic pace to issue their own versions of it; complete with fees and commissions, of course. So as governments weigh the complexity and the interjurisdictional implications of regulatory propositions, it may be important to know that a number of crypto companies are lobbying, too. But why? What will that regulation look like, exactly? How will it affect what you’ve already invested?

A number of economists, lawmakers, and financial companies are asking the same questions. And the fact is… nobody is really sure. But the idea that banking and financial institutions are lobbying so aggressively is telling.

Mondato, a consulting firm specializing in fintech & digital finance, recently published its view on the subject. The firm points out that “China, the U.S., the EU and elsewhere are on the precipice of releasing their central banks’ own digital currencies, which may serve as competitors to cryptocurrencies that regulators seek to favor over decentralized cryptocurrencies beyond their control. Lobbying from traditional banks and financial institutions, fearful of crypto’s instability and potential to render many of their services obsolete, may also dictate regulatory regimes towards hostile ends.”

For Mondato, of course, this is no small statement. While it certainly reflects the concerns of many, the truth is that crypto creators, themselves, are working to make the industry more reliable and relatable in the eyes of a public that has been slow to warm to them. Overcoming that perception of “instability” has always been a challenge when limiting a central authority. But more traditional, mainstream investors may see crypto more favorably if at least some stop-gaps are in place… hence crypto’s own involvement in the process. A number of them are already spending millions in lobbying, and lawmakers are bombarded with active and well-funded interests on all sides.

Citing Nicola Borri, Assistant Professor of Economics of LUISS Guido Carli University, Mondato backs up its assertion that while regulation is inevitable and has its downsides, the conversations currently taking place about its necessity are generally healthy. “Cryptocurrencies were born from people that have in mind a world with little regulations” writes Borri. “But at the same time, what we know from a lot of research, history, is that markets that are not well-regulated don’t work well… I expect the regulations of these crypto exchanges will be much more similar to the regulation that we currently see for intermediaries, especially for information disclosure and capital requirements. It will make it a little more expensive, but it will make it also much safer for investors, and ultimately it will lead to this asset class becoming much more mainstream.”

From a much broader perspective, the discourse revolving around sweeping regulations for cryptocurrency have all the familiar buzzwords that are at times dizzying, frustratingly overgeneralized, and often misleading. The idea of “ regulatory ambiguity”—the confusion over how conflicting or conflated laws and rules might be applied, thus creating confusion in the market-- is perhaps over emphasized. With crypto that operates off the blockchain, using RAIDA technology, CloudCoin is a truly decentralized, safe, and convenient form of crypto with transactions that happen in milliseconds—not days, or weeks. We believe the value of your investments deserve the best of all possible regulatory outcomes, and we will continue to monitor and report on regulatory changes that might affect the industry as a whole.

A Secure Email That Can Withstand Quantum Computers

March, 11 2021

Bitcoin.com Exchange Interview with CloudCoin's Chief Scientist Sean Worthington

November, 11 2020

Bitcoin.com Exchange Interview with CloudCoin's Chief Scientist Sean Worthington

CloudCoin's mission is to provide a "perfect" global currency that cannot be counterfeited, double-spent, or permanently lost; a currency that is resistant to theft; a currency that is 100% private, requiring no public ledgers, accounts, or even encryption; a currency that is so efficient that it needs no fees; a currency with a fixed supply, therefore no inflation; a decentralized monetary system that is absolutely fair and ethical that cannot be manipulated, monitored, or brought down by banks or governments.

You can find Sean's book, Beyond Bitcoin: The Future of Digital Currency, mentioned in the show here:

Beyond Bitcoin: The Future of Digital Currency

Tech Talk with Sean Worthington "CloudCoin"

August, 21 2020

Tech-Talk with the founder of CloudCoin, Sean Worthington. Sean is a Computer Science professor at Butte College in California. He has a PhD-ABD in Computer Information Systems and he authored the book "Beyond Bitcoin."

The Tech Academy is an award-winning technology school that delivers online training to students all over the world.