Winning in sports means scoring more points than your opponent. It's a zero sum game...one winner and one loser. Winning in the business world is different. There are many winners and many losers. You don't earn points, rather the goal is to make sure your revenues are greater than your expenses...to generate profits.
This is Kelly Coughlin, CPA and CEO of EveryDayCPA. I like to play sports and I love business. And in both cases, I play to win. If you to want to win in the virtual currency business, you need to manage your BIGGEST expense... if you win...and this is taxes. This five-part series will show you how to win this game!
This is a five-part series, "Cryptocurrency Taxes: Know What You Don't Know - 3 Rules of Three".
I will help you see why three is your magic number. Let's get right into it. Cryptocurrency: 3 Rules of Three There are 3 sources of revenue. There are 3 types of accounts. And there are 3 types of entities you need to use to minimize your taxes. Let's start with Part 1: 3 sources of revenues and hopefully profits from these revenues. I don't need to tell you here that financial profits are being generated from crypto currency. So are losses. In this series, I am only going to focus on the minimizing taxes on PROFITS. Did you know that the IRS and other tax agencies frankly don't give a rip about whether your revenues and profits come from "legitimate" business activities? I don't know if virtual currencies are the next tulip bulb ready to burst or the next generation of currency to replace traditional currencies. But for now, I don't care if it is legitimate or not. The IRS and other tax agencies don't care if it is legitimate. They care if it is profitable. Al Capone and other Organized Crime bosses, frequently get in the cross hairs of the IRS when they match the income on their tax returns with the income required to sustain their lifestyles. Let's just stipulate one thing now. If you are earning profits, the IRS wants their share of these profits. The key is to make these profits AND minimize your tax... LEGALLY. Not reporting is certainly an option...but a very bad idea. This puts you in prison. Ignorance of when an activity is taxable is also not an option...this MIGHT not put you in prison...but it will physically destroy your financial statement...not some theoretical virtual loss or charge, but an asset seizure, wage garnishment, and/or tax lien. One of my favorite quotes about the IRS is their urban myth motto on their desk: "We have what it takes; to take what is yours."
My goal here is to help you understand how to structure your crypto profit generation in ways that minimize the tax expense and liability in the event you generate profits.
Crypto: Three Ways to Generate Profits
The first thing I want to cover is to define the different ways you can generate profits from Crypto business activities. For simplicity, I am frequently going to refer to the crypto business as Bitcoin, since this is the most recognizable digital currency.
Next Time: 3 Types of Cryptocurrency Accounts
Next episode we will cover the three types of accounts to operate your virtual currency business activities: a taxable account; a pre-tax account (like a 401k or an IRA); and a POST-tax account (Roth IRA). Which type of account you use for your virtual currency business has a HUGE impact on your current and future tax liability. This is Kelly Coughlin at EVERYDAYCPA and thanks for watching.
* * * EverydayCPA exists to help small business owners and families better manage their businesses and finances. We help you learn and adopt strategies and tactics on business, family accounting, budgeting, and credit management and improvement. And we show you ways to build and grow savings to help you compete, win, and succeed and hopefully live a happier, healthier, stress-free life. Contact us today, and start taking charge of your financial health! http://www.taxresolutionhelpcenter.com