"You WILL Get Caught!" - Act Now & Fix Your Crypto Taxes!

Summary

The video script discusses the importance of understanding and managing crypto taxes due to increasing IRS scrutiny. It reveals that over 70% of viewers haven't paid crypto taxes, highlighting the need for proactive tax strategies. The speaker shares insights from a cryptex adviser on optimizing taxes, avoiding scams, and handling various crypto transactions. The video emphasizes the necessity of consulting local tax experts, using the right tools for tax calculations, and staying compliant to avoid penalties. It also touches on the potential of new technologies like Trestle Finance in the modular blockchain space.

Takeaways

• 📊 The IRS and other tax authorities are becoming increasingly aggressive in tracking down individuals who have not paid taxes on their cryptocurrency transactions.
• 🔄 It's crucial to understand that tax evasion is not a matter of if, but when you will be caught. Proactively managing your taxes in a bull market can help cover past tax obligations.
• 🚫 Over 70% of respondents on the speaker's profile have not paid taxes on crypto, indicating a widespread issue that needs addressing.
• 🌐 The speaker emphasizes that the advice given is not financial or tax advice and recommends consulting with local tax experts.
• 🔑 The blockchain's transparency and immutability make crypto transactions traceable, even if done through non-KYC exchanges.
• 💡 The video outlines actionable tips for optimizing crypto taxes, including dealing with scams, hacks, and various crypto-related activities.
• 💼 The importance of understanding the difference between capital gain tax and income tax is highlighted, especially when receiving tokens as payment or rewards.
• 📈 The video discusses tax implications for different types of crypto activities, such as investing, trading, NFTs, staking, and mining.
• 🛑 There are non-taxable events in crypto, such as long-term holdings exceeding 12 months, wallet transfers, and receiving crypto as a gift.
• 📚 The necessity of keeping comprehensive records of all crypto transactions and understanding the cost basis for tax calculations is stressed.
• 🔄 Tax loss harvesting is presented as a strategy to offset gains with losses, which can significantly reduce tax liabilities.

Q & A

What is the main focus of the discussion with the cryptex adviser?

The main focus of the discussion is the complexity of crypto taxes, the aggressive stance of the IRS, and the importance of being proactive in managing crypto taxes, especially during a bull market.

Why is it a problem that over 70% of respondents on the speaker's profile have not paid taxes on crypto?

It's a problem because not paying taxes on crypto can lead to legal consequences. The IRS and other tax authorities are becoming more aggressive in tracking and enforcing tax compliance in the crypto space.

What is the speaker's mission in relation to crypto?

The speaker's mission is to find a billion ways to make money in crypto and to share everything with the audience so they can make money too.

Why is the speaker not considered a financial or tax adviser?

The speaker is not a financial or tax adviser because they are providing general information and not personalized financial or tax advice. It is recommended that viewers consult with their local tax advisers or authorities for personalized advice.

How is the IRS becoming aggressive in tracking crypto transactions?

The IRS is becoming aggressive by appointing additional staff, focusing on crypto taxation, hiring experts from the crypto industry, and requesting data from centralized exchanges, which can lead to tracing transactions back to individuals.

What are some taxable events in crypto?

Taxable events in crypto include selling crypto for fiat, trading one crypto for another, and spending crypto. In some jurisdictions, adding crypto to a liquidity pool can also be a taxable event.

What is the difference between capital gain tax and income tax in the context of crypto?

Capital gain tax applies when you sell or trade crypto and make a profit, while income tax applies when you receive crypto as payment for work, airdrops, staking rewards, or mining. The tax rates and brackets for these types of taxes can differ.

What are some non-taxable events in crypto?

Non-taxable events include holding crypto for long-term (over 12 months in most jurisdictions), transferring between wallets, and receiving crypto as a gift.

What is the importance of understanding inventory methods when dealing with crypto taxes?

Understanding inventory methods is crucial because it determines which crypto assets you are considered to be selling or trading, which affects your cost basis and potential tax liability.

What is the significance of the Trestle project mentioned in the script?

Trestle is a project aimed at providing a seamless connection between the Ethereum chain and Celestia chain, allowing users to get exposure to Celestia without bridging over to the Celestia network. It is considered a significant development in the modular blockchain space.

What are some strategies to minimize or eliminate crypto taxes legally?

Strategies include tax loss harvesting, understanding and utilizing non-taxable events, using appropriate inventory methods, and being proactive in managing crypto transactions and holdings.

What is the potential risk of using digital residency to avoid paying taxes?

The potential risk is that tax authorities may not recognize the digital residency as a valid reason for tax avoidance. They may argue that 'substance over form' applies, meaning they will look at where you actually live and use resources to determine your tax obligations.

What is the current trend in tax authorities' approach to crypto taxation?

The current trend is towards enforcement, with tax authorities partnering with private companies and hiring experts from the crypto industry to better understand and enforce tax compliance.

Outlines

00:00

📊 Importance of Crypto Tax Compliance

The speaker begins by discussing the complexity of crypto taxes and the aggressive stance of the IRS. They highlight the importance of being proactive with crypto tax management, especially during a bull market, to optimize tax strategies. The video aims to educate viewers on crypto tax essentials, including dealing with past tax non-compliance, optimizing taxes with simple techniques, and protecting against scams and hacks. The speaker emphasizes the global applicability of the tips and stresses consulting local tax advisors for personalized advice.

05:00

🕵️‍♂️ How Tax Authorities Trace Crypto Transactions

The speaker explains how tax authorities, particularly in the US, are becoming adept at tracing crypto transactions. They discuss the role of centralized exchanges, which have users' identity information and transaction histories, making it easier for the IRS to request and obtain data. The blockchain's transparency and immutability also contribute to traceability. The speaker warns that even non-KYC exchanges can provide enough information to identify users, and that tax evasion can lead to serious consequences.

10:01

💰 Understanding Taxable Events in Crypto

This paragraph delves into what constitutes a taxable event in the crypto space. The speaker clarifies that taxes are due when crypto is sold for fiat, traded for other crypto, or spent. They distinguish between capital gain tax, which applies to profits from the sale or trade of crypto assets, and income tax, which applies to earnings such as staking rewards, airdrops, and mining rewards. The speaker also mentions non-taxable events and the importance of long-term holdings for reduced tax rates.

15:03

📚 Organizing Crypto Tax Data and Using Software

The speaker advises viewers on how to organize their crypto tax data, emphasizing the importance of having complete data, including public wallet addresses and CSV files from exchanges. They discuss the challenges of using tax software like CoinLedger and recommend seeking professional help due to the complexities involved in data reconciliation. The paragraph also introduces Trestle, a project aimed at connecting Ethereum with the Celestia ecosystem, and discusses its features and potential.

20:04

🛠️ Dealing with Complex Crypto Tax Scenarios

The speaker addresses the complexities of calculating crypto taxes for those heavily involved in trading and using multiple wallets and exchanges. They discuss the limitations of tax software, the need for manual intervention, and the importance of understanding the tax implications of different actions. The speaker also provides practical steps for those with simpler crypto activities, such as holding or occasional trading.

25:06

🎨 NFTs and Advanced Crypto Tax Considerations

This paragraph focuses on the tax implications of non-fungible tokens (NFTs) and other advanced crypto tax considerations. The speaker discusses bundle purchases, mint and burn transactions, inventory methods, and liquidity pool regulations. They stress the importance of understanding country-specific rules on these topics and the need for meticulous record-keeping and planning when dealing with NFTs and complex transactions.

30:07

🔄 Tax Loss Harvesting and Future Tax Strategies

The speaker introduces the concept of tax loss harvesting, where realized losses are used to offset realized gains, thus reducing tax liabilities. They also discuss the importance of being aware of cost basis and holding periods when making trades. The paragraph touches on the potential risks associated with digital residency for tax purposes and emphasizes the importance of compliance and aggressive tax optimization within legal boundaries.

35:07

⚖️ The Future of Crypto Tax Regulations and Enforcement

In the final paragraph, the speaker predicts an increased focus on enforcement by tax authorities in the coming years, as they partner with private companies and upskill their staff to better understand crypto. They anticipate official regulations and amendments to tax acts to address crypto taxation. The speaker concludes by reiterating the importance of paying taxes and staying informed about regulatory changes.

Keywords

💡Crypto Taxes

Crypto taxes refer to the taxes that individuals or businesses must pay on their cryptocurrency transactions. In the video, the theme revolves around the importance of understanding and managing crypto taxes to avoid legal issues and optimize financial gains. The script mentions various techniques to optimize crypto taxes, emphasizing compliance with tax regulations.

💡IRS (Internal Revenue Service)

The IRS is the U.S. government agency responsible for tax collection and enforcement. The script highlights the IRS's increasing aggressiveness in tracking and enforcing tax compliance in cryptocurrency transactions, with the appointment of additional staff and experts in the crypto space.

💡Taxable Event

A taxable event in the context of the video refers to specific actions that trigger tax obligations, such as selling, trading, or spending cryptocurrency. The script explains that realizing gains, like selling crypto for fiat currency or trading one crypto for another, constitutes a taxable event.

💡Capital Gains Tax

Capital gains tax is the tax levied on the profit made from selling or trading an asset. In the video, it is mentioned that individuals must pay capital gains tax when they sell their cryptocurrency for a profit, and the tax rate may depend on whether the holding period is long-term or short-term.

💡Income Tax

Income tax is the tax paid on an individual's earnings, which in the context of the video, includes earnings from cryptocurrency transactions such as staking rewards or airdrops. The script clarifies that income tax applies to the value of tokens received as income, regardless of subsequent price changes.

💡Tax Optimization

Tax optimization involves legal strategies to minimize tax liabilities. The video discusses various techniques for optimizing crypto taxes, such as understanding cost basis, utilizing tax loss harvesting, and being aware of inventory methods like FIFO, LIFO, and average cost basis.

💡Cost Basis

The cost basis is the original value of an asset for tax purposes, which is crucial in calculating capital gains or losses. The script emphasizes the importance of accurately determining the cost basis for cryptocurrencies to ensure correct tax reporting.

💡DeFi (Decentralized Finance)

DeFi refers to financial services operated on blockchain technology without central authority. The video touches on DeFi's role in generating taxable income, such as through yield farming or liquidity provision, which must be reported for tax purposes.

💡Tax Loss Harvesting

Tax loss harvesting is a strategy where investors sell underperforming assets to offset gains from other investments, thereby reducing taxable income. The script provides examples of how this can be applied in the context of cryptocurrency to legally minimize tax liabilities.

💡NFTs (Non-Fungible Tokens)

NFTs are unique digital assets that represent ownership of a specific item or piece of content. The video discusses the tax implications of buying, selling, and trading NFTs, including the need to track cost basis and recognize gains or losses.

💡Compliance

Compliance in the video refers to adhering to tax laws and regulations. The script stresses the importance of being compliant with tax obligations related to cryptocurrency to avoid legal consequences and to ensure a solid financial foundation.

Highlights

The IRS is becoming increasingly aggressive in tracking down individuals who have not paid taxes on their cryptocurrency transactions.

Over 70% of respondents on the speaker's profile have not paid taxes on crypto, indicating a widespread issue.

Crypto taxes can be optimized with simple techniques regardless of location.

There are various ways to make money in crypto, including minimizing tax liabilities.

The speaker emphasizes consulting local tax advisers for personalized advice due to the sensitive nature of tax topics.

The IRS has hired additional staff to focus on crypto taxation, indicating increased scrutiny in this area.

Most centralized exchanges have user identity and transaction history, making it easier for authorities to trace activities.

Even non-KYC exchanges may have enough information to trace users, such as email addresses and IP locations.

Taxable events in crypto include selling to fiat, trading for other crypto, and spending through a crypto card.

Long-term holdings over 12 months are taxed at a different rate, potentially lower.

Income tax applies to rewards from staking, mining, and airdrops, regardless of token price fluctuations.

Capital gain tax is different from income tax and applies when assets appreciate in value.

There are non-taxable events in crypto, such as holding long-term, transferring between wallets, and receiving gifts.

Individuals can volunteer to report unreported taxes without penalties in some jurisdictions.

The importance of complete data and accurate cost basis calculation for tax optimization cannot be overstated.

Using specialized software or professional services can help manage the complexity of crypto tax calculations.

Trestle is highlighted as a project aiming to bridge Ethereum with the Celestia ecosystem, offering staking and a unique approach to modular blockchains.

The video discusses the importance of understanding and utilizing tax loss harvesting to offset gains and reduce tax liabilities.

Digital residency and tax avoidance strategies are mentioned, but the speaker advises caution due to potential legal risks.

The future of crypto taxation is expected to involve increased enforcement and potential changes in tax acts.

Transcripts

I just had a long discussion with a

cryptex adviser and we got to talk they

they look paced and they tell me Chris

we've been trying to do this our sales

for 3 4 months hard sometimes and they

it's just so complex the IRS is becoming

very aggressive because it's not a

question of if you will be caught you

will be caught it's a question of when

and what better time to become proactive

in in the bull market because at least

you have some funds a lot you can do to

optimize your crypto taxes by staying

where you are so want to get very real

here I asked you on myx profile whether

you have ever paid tax on crypto and

over 70% of you said no and that is a

problem so in this video I'm going to

give you everything you need to know

about crypto taxes we'll talk about what

to do if you have not pay taxes ever how

you can optimize your taxes with some

simple techniques how you can ride off

rugs scams hacks and coins and nfts

that's just simplement zero how to

handle taxes when it comes to investing

trading on centralized exchanges

decentralized exchanges nfts liquidity

pools staking Mining and every tip I'm

going to give you will be applicable

regardless of your location there are a

billion ways to make money in crypto and

I am on a mission to find them all my

name is f i share everything with you so

if I make money you can make money too

if you're new to the channel subscribe

we bring you the best offer in the

crypto industry if you're returning

smash the like button and let me know in

the comment section if you like this

content and what you want me to review

or test next so one ways to make money

in crypto is to not pay that much taxes

and preserve all your Capital all your

gains and very important before we get

going with this video I have to tell you

I am not a financial or tax adviser

anything in this video is not Financial

advice and you should always always

always consult with your local tax

advisers or authorities but this is a

very sensitive topic so I couldn't just

go on Google and share with you whatever

I found I had to take another approach

and this is exactly what I did so I

reached out to Chris herbs from C defi

who is specialized in crypto Taxation

and he told me that there are a lot of

things that you can do to optimize and

minimize or even completely eliminate

your taxes without having to move to

another country my idea to minimize my

crypto taxes was okay I'm going to move

to Dubai and that's it well it's not

that easy for example if you're in the

United States you can just simply

relocate and solve your taxation issues

also if you have not paid your taxes up

to today it doesn't matter what you do

in the future because the past years

that you have not paid your taxes for

will be taxed on the location where you

are right now I got good news because I

got the solution for you I'm going to

outline this in this video but you could

ask me why do you do this video right

now and the reason is simple because

this is the bull market one if you have

not paid your taxes yet now you will

have the funds to cover even going back

to the past four years because as Chris

said it's not a question of if you will

be caught you will be caught it's a

question of when and in a second I'll

show exactly how you'll be caught number

two by implementing the tips I'm giving

you in this show you will have a much

better start starting point and you will

be able to optimize your taxes going

forward if the tax year ends there is

nothing you can do so going forward the

only thing that you can do to optimize

your taxes is to be proactive and know

what you got to do so let's jump into

the show number one how will they catch

me yeah so this is a conversation we

very often have with clients I first

want to find out let before I proceed

with your services let me make sure that

I can be caught otherwise it's a

different discussion absolutely yeah if

if we look at what's happening in the US

the IRS is becoming very aggressive

they've appointed 87,000 additional

staff and they set a part of that focus

is crypto end of February this year they

appointed two big crypto space tax

advisors one that was which is

interesting the head of tax Global Tax

for consensus and of consensus is of

course the parent company of metamask

and then also uh another person that was

head of global tax for crypto tax

software so they are bringing in a lot

of experts so absolutely it is traceable

and here's why somewhere most people

have a Fiat on ramp so even if you only

use a hot wallet let's say metamask you

still have a coin base account or

binance account where you put in your

Fiat and you have kyc and you move that

to that hot wallet that centralized

exchange like coinbase have your

identity and they have of course the

transaction history of where you moved

that crypto the relevant institution you

use Robin Hood or whatever they send a

form to the IRS to report your gains

losses income Etc they aren't giving

that finer grain data straight up but if

the tax Authority asks for it which is

happening now most exchangers will not

fight that they will give it some

exchangers might fight it and lose in

the court and then they have your finer

grain data and they can see all the

possible wallet addresses you've moved

crypto to and they can put that wallet

address in ether scan and see wallets

that was transferred to Etc and there's

tracing software I mean the moment we

get our client data and we put it into

software like J analysis it becomes very

clear quickly the whole flow of that

data from the centralized to the hot

wallets and and let's remember the

blockchain is one immutable and two 100%

transparent so all that is protecting

you if that is your argument is that

your name is not next to certain

addresses and that can be traced from an

enti entry point from kyc exchanges and

then if the tax authori is unsure they

send you a letter and this we've seen

and they ask you is this your address or

not and of course if you're at that

point going to say no that's a different

kind of situation it's all good and fine

but what if I use a non kyc exchange you

might ask good question so the thing is

that exchanges even the non kyc ones

have a lot of information about you

we're talking about email address we're

talking about phone number IP addresses

through that your location if you're a

small Trader Maybe you have not much to

worry about but if you are becoming a

larger Trader or the platform that

you're trading on gets a major

investigation you can get in serious

trouble because they might be able to

backtrack you from the information they

already have of course you can use a

burner email and you can use a VPN and

you can do all that but you really have

to evaluate whether it is worth doing

that now that we agree that they are

going to catch you we can talk about

what is a taxable event in crypto pause

there and say what is a realization a

realization in crypto is if you sell

your crypto to for Fiat if you trade

your crypto for other crypto if you

spend your crypto so this is one a lot

of people don't take into account if you

have a binance Cartage you buy a coffee

you are actually selling your crypto for

fear so those are all realizable events

in some cases in some countries it's

even a realizable event if you put it

into a liquidity pool so in general you

got to pay taxes when you sell to Fiat

when you swap from crypto to crypto and

when you spend your crypto through a

crypto card I'm actually planning a

special video on how you can save a

bunch of money using crypto cards if you

want that let me know in the comment

section so let's look at everything

separately number one investing if

you're investing meaning you don't swap

and buy and sell and transfer and

metamask and all that but you buy the

coin on an exchange you leave it there

and at one point you are selling it you

only pay tax when you sell your crypto

if you sell your crypto over 12 months

that will consider as long-term holding

and that have a different capital gain

bracket meaning you will most probably

pay less tax number two is trading

Trading trading is swapping or buying

selling different coins so whether

you're leverage trading whether you're

spot buying and selling whether you're

just swapping on unisoft whatever you do

that is taxable every single transaction

so for example if you buy ethereum for

$1,000 and you sell it for $2,000 you

have to pay capital gain tax on the

$1,000 profit if you buy ethereum for

$11,000 and you sell it for $500 you

will have a $500 loss that you will be

able to use to offset your gains in the

future same goes for swaping if you have

an ethereum that you bought for $11,000

and you swap it to Solana when your

ethereum is worth $22,000 you have to

pay tax on that $1,000 profit and now

the cost basis for the salana that you

have is $2,000 so just to make it

understandable if your salana back if

you buy ethereum for $1,000 you set you

swap it to salana when it's worth 2,000

you pay capital gain tax on the $1,000

and your Solana bag is worth $2,000 when

your salana bag goes to $3,000 and you

sell it to Fiat or swap you will need to

pay capital gain tax again on the $1,000

number three nfts So when you buy an nft

that has a price that you buy it for

that's basically the the cost basis that

you have that means if you buy an nft

for $11,000 if you sell it for more than

$1,000 you will need to pay capital gain

tax if you sell it for Less you can ride

off that amount now if you've noticed

I'm talking about capital gain tax

because you gain something from the

purchases or from the transaction action

that you're making that is a different

tax than an income tax so if you buy an

asset for example crypto and it

appreciates in value you have to pay

something called capital gain tax it's a

different bracket different percentage

but if you work or you get paid for your

work you have to pay something called an

income tax and that's also a different

percentage so why is this interesting

it's interesting because if you're

getting paid in tokens if you're getting

air drops if you're getting staking

rewards if you're mining you will also

have to pay in tax now if it doesn't

make sense now hold on here because this

is important this is the number one

thing that can really wreck people in

crypto so let's say that you get paid in

crypto when you get paid in crypto in

the native token of the project you have

a cost basis the value of those tokens

on the day you receive them let's say I

get 10 tokens for my work and one token

cost $10 so I got $100 worth of tokens

on that $100 worth of tokens I have to

pay income tax no matter what it doesn't

matter if the coin price goes up or down

I will have to pay my income tax if my

income tax is 20% I will have to pay

$200 from the day I receive those tokens

so the problem comes in when I don't

sell those tokens but the token value

fluctuates as the market goes let's

assume that the token goes to zero I

still have my income tax that I have to

pay but because the token went to zero I

have nothing to pay it with so even

though I made no capital gains I still

have to pay my income tax so always pay

pay attention when you stake and you get

rewards when you mine when you get adir

drops or when you get paid in crypto you

always have to understand your income

tax bracket understand what percent you

have to pay of that amount regardless of

the token price appreciation or not and

withraw that amount take that amount

sell it and make sure that you have

funds to cover the income tax that you

will need to pay now the question man

come what happens if the project is a

rug so let's assume you get an air drop

you wake up the next morning and the air

drop when you got it was worth $11,000

but now worth one so with a 20% income

tax you would have to pay $200 but you

don't have anything that you could have

sold because you didn't even know it

existed or you were asleep now

technically you would have to pay that

tax even though you had nothing to do

with the adrop but more and more

regulations are coming in different

countries for example in Germany if you

did not have anything to do with the

adrop you do not have to pay the income

tax so pay attention to that and check

the regulations in your own country but

that's not all because you still have

the capital gain tax so let's stick with

the example that the coin that you

receive is worth $1,000 when you receive

it next morning you wake up it's at $1

the income tax we talked about what is

the capital gain tax because the tokens

that you received you received it at

$11,000 and they went to zero or $1 if

you can realize that loss you have $900

or

$1,000 offset to your capital gain taxes

so if you can realize the loss meaning

you can sell the token there is still

liquidity or if there is no liquidity

you can send it to a simple burn address

you can Google burn addresses and send

the token there then you realize the

loss and you can have use that to offset

your capital gains in the future so if

there is a project that rug you and you

lost $11,000 and you have a project that

you made $1,000 on you have to pay 0%

capital gain tax again remember that has

nothing to do with the income tax I know

I know I know I know it's heavy I

understand it's heavy but we have to

talk about this because it will come and

bite Us in the S so a little briefer I

have good news because there are events

that are non- taxable in crypto and we

can take advantage of number one on

long-term Holdings I talked about this

but if you hold your coins for more than

12 months on most jurisdictions you have

lower or no capital gain tax number two

transfers if you transfer between your

wallets whether it's centralized

exchanges or decentralized exchanges you

do not have to pay tax on those

transfers number three gifts if you

receive crypto as gift there is no tax

obligations on that but if you give the

gifts that counts as spending therefore

you will have to pay the capital gain

now what if you got tagged or an

exchange went bankrupt that you had or

you lost seed phrases to the wallet that

you owned well in that case you cannot

write it off as a loss so you cannot

offset your capital gains however you do

not have to include that in your

reporting so if those coins are still

there and you cannot sell them you

cannot realize the loss therefore you

cannot offset your loss but again you

will be able to leave that out of your

Taxation and you don't have to pay taxes

on those coins important to not though

that there are jurisdictions that allow

you to offset the cost basis the

purchase price of the crypto that you

lost so that's also pretty cool so by

now probably or of you either turn off

the video or just sitting like this

thinking what the did I do so let's

start figuring out how we can clear

ourselves for the past years number one

very important there are a lot of

volunteer reporting opportunities right

now because there is no regulation

because the tax agencies don't really

know how to deal with this whole thing

they allow you to volunteer report taxes

that you have not reported and they

don't give you penalties you will still

need to pay the tax however you don't

have to pay the interest and you don't

have to pay the penalties so check that

out in your country if you have that use

it second you have to start sorting your

data here's what Chris says the first

thing is you now have to get all your

data and that means in most cases have a

list of all your hot wallets that you've

used just the public addresses get

access to let's say CSV files from your

centralized exchanges or API Keys read

only API Keys all the that means is

whichever software you're going to use

now to calculate this and do your work

on you can enter API key and secret and

draw that data directly from the

exchange but the focus here is on

complete data if you have gaps in your

data so in in calculating crypto taxes

there's one phrase that we use and

that's cost basis is King you need to be

able to prove your cost basis and the

more complete your data is the better to

organize your data there are a lot of

software you can use Chris said they

tried a bunch and coin Le work the best

you can try coin Le he says it's not as

simple as they say that you just plug it

in and it works but you can try that in

my personal opinion the best thing is to

use a company and here is why most of

our clients attempt this themselves um

and mostly they attempt this on coly but

they realize at some point that it's a

lot more work than they thought because

you still have to do a lot of

pre-processing on your data you still

have to manually intervene you have to

go our reconciliation team after our

data phase they go through every

transaction and make sure there isn't a

transfer that's been missed the moment

you miss a transfer so let's say you use

coinbase and you use Mex C in two

totally different jurisdictions so maybe

the csvs that you used because one of

them don't support apis is UTC plus two

time zone the other one is GMT 0 now

those transfers might not be picked up

by the software so now it's taxable

events because if you cannot show it's a

transfer it's a taxable event and you're

not tracing that cost basis so it's

super important that you very carefully

go through every transaction same thing

when you're bridging many times bridges

are not picked up because you you have a

different token coming in many times

even though the data is in software like

that we have to open up the relevant

scanner and we have to look in depth

what actually happened in the internal

transactions to figure out what happened

there talking about bridges today's

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Bridge Trestle Celestia is the new shiny

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is adopting a completely new approach

and therefore can be categorized as a

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blockchains and Celestia as well is

completely new and it's in a very early

stages of development but it aims to

facilate transactions much faster

through specialized blockchains and

therefore much more securely but

Celestia is kind of like a closed

ecosystem it's very difficult to get

into Celestia ecosystem from different

ecosystems and here is where trestor

comes into the picture so Trestle

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using rep Tia or rep Celestia and earn

repa by holding Trestle so with the help

of trestle anybody from the ethereum

ecosystem will be able to get exposure

to the Celestia ecosystem without having

to bridge over to the Celestia network

if you're bullish on modular blockchains

and if you're bullish on Celestia you

probably have to be bullish on the

bridges as well now as I said modular

blockchains are completely new and

therefore not many people understand

them in a traditional blockchain world

you could call Trestle as a bridge

however in the model of blockchain world

Tres is not just a bridge but it's much

more than that it's kind of like a layer

one itself if you scroll down on their

side you will see trestles for Celestia

pillars number one manage repa repa will

now be available for ethereum users to

purchase on ethereum chain allowing

exposure to Tia without having to bridge

over to the celestial Network this is

what I explained Tia Bridge seamlessly

and securely swap between Tia and

ethereum earn red Tia you will be able

to earn red Tia through staking Trestle

obviously when people use the bridge

there is a small fee and that fee gets

distributed to the stakers and then

Trestle chain which is very very

interesting for me Trestle will be

releasing their own roll up chain on

Celestia trel's incubator will onboard

new teams onto the Celestia R up on

chain so it's not just a project not

just a bridge but they will create an

incubator to help Builders go and build

on a Celestial blockchain they

constantly announce their Partnerships

as well most being Milky Way Zone which

is the biggest liquid staking protocol

on Celestia or Caldera which is also a

very prominent player in the modular

blockchain space they obviously have a

token called Trestle very very early

stage again this is one of my DJ plays

this is one of the zero or hero plays in

my opinion if you're bullish on the tech

of Celestia which I think is fantastic

I'm just not sure if it's retail

friendly enough to be huge disp but if

it is or if you want to invest in the

long term I think this can be very very

interesting the good thing about the

token as well is that you can stake it

and gain yields on their website you can

go to staking what's also interesting is

that they use staking length to

determine the amount of coins that you

are going to get as rewards so the more

committed you are to the network the

more coins you get and therefore the

higher your Roi is if you're interested

on the project I advise you to read your

docs they have everything very nicely

outlined welcome the mission overview

bridging process tokenomics and whatnot

they have an audit for the bridge as

well which is also super super

interesting very important I do hold a

tiny bag as a DJ play for myself there's

only one thing I don't like is that the

team is not dogs however I still think

the risk reward is there and if they

pull it off and if they become the main

bridge on Celestia this can be very very

lucrative what you will see on the

software is that it also doesn't support

a lot of things like many times There's

issues like the salana a salana Recon is

very manually intensive a osmosis Recon

is very manually intensive the whole

Cosmos ecosystem and it's just the way

they structure their data so then we

have to use a bunch of scanners use a

bunch of our own software to figure out

what's actually going on so if you do it

yourself be prepared from the start to

have patience and understand it's not

going to be quick if you're going to try

and do this quickly you are just going

to get frustrated if you believe you

have the mental fortitude to go through

with this here is how you should do it

if you have been mostly holding and not

trading that much meaning you had a

trade here and there you sold them both

but that's not the main reason why you

are in crypto and you don't have a

million metam mask wallets and Phantom

wallets and five exchanges and nonky

exchanges here's what you should do just

to touch on one other thing you said

let's say you only had coinbase and

binance us there's a good chance you can

use the software connect it and it's

going to be perfect that is possible and

maybe you add one metamask wallet evm

chain only ethereum you just fix one or

two things so many times when your

situation is very simple it's not going

to be a a month job but a lot of clients

have spent 3 months on calculating the 5

years that's outstanding because you Al

have to remember what you did in 2017

which is not that easy so it is quite a

manually intensive process and then also

you can use external analytical tools

and scanners to help you bolt out the

picture but practical steps is get all

your data put it into the software go

through all transactions and make sure

everything is correct pay attention to

the warnings and then once you are happy

you can generate your reports and then

that reports you need to discuss with a

local accountant or Tax Advisor to go

about correcting prior years but if you

are a Deen like us I mean we can't help

it first of all you got to subscribe

that's what you should do because we

bring you the best Alpha but you know

this already the second first step is

get all your public addresses get csvs

get your IPI Keys then subscribe to

something whatever you think is the best

reconciliation software put your wallets

in put your csvs in all the stuff that's

not supported start making your own

custom Imports that you need to import

then and then you have to go through

every single transaction and see what is

the software actually doing with it

seeing that if that market values are

correct if you're into meme coins

there's a world of hurt when you work

with these software because a lot of

them are limited on 16bit integers or 32

bit and sometimes mem coins have an

extremely low value and an extremely

high quantity so then market prices are

not picked up correctly so you have to

make sure many times we have to

intervene and fix market prices because

the wrong contract address is used to

determine the market price so you have

to also make sure your market prices are

correct so if you are into experimenting

and using you know bunch of phantom

Wallets on salana and you also into

osmosis and sui Network and all that

type of stuff it can quickly become

overwhelmingly complex because firstly

you open up a wallet for everything you

want to try and you now have to find out

what is all the wallets I've opened what

is all the exch all the the blockchains

that I've actually used what did I do on

this protocol and then you start with

yield farming and stuff where you now

have to remember you know I took this

then I locked it up and I got an LP but

then I staked this LP and I got another

type of token back and then if you go to

things like transaction volume because

you know how easily if you sit on DJ all

day you rack up four 5 600 transactions

in a day because you do one thing but

you're hopping between liquidity pools

to exchange something on a DEX and now

you get 15 transactions where it was

actually one so you rack up a lot of

transactions quickly so it can become

extremely complex just to even if you

look at salana like magic Eden and those

stuff in the past it's very diff

difficult to reconcile and I think again

don't do a half job if you're not

willing to understand and go back and

figure out what you've done then don't

do it yourself rather let somebody else

do it again I'm genuinely not trying to

self-promote you but teams like ours

they've been doing it for years and

they're doing it all day so they

understand how magic Eden worked in 2017

they understand the nuances with Cosmos

they understand the nuances with with

other things so be willing to put in

that work it genuinely pays off um in

tax savings and then also data volume a

lot of the software cannot handle volume

above a certain number it becomes too

slow and the Recon ation becomes too

painful so if you used Bots and you're

sitting with a million transactions then

you have to again understand aggregation

or bulking that you can bulk some of

those transactions together based on

certain principles so that you can get

your transaction volume palatable to

take it into the software but you can't

bulk or aggregate if you don't

understand what's the tax implication of

doing that and since we're still talking

about how we can clear ourselves for the

past years if you've been here long

enough and you've been involved in the

nft Mania and if you bought a bunch of

nfts that went to zero or you made some

money on nfts here's what you should do

and then we haven't really touched on

nfts nfts is of course a super important

factor as well because sometimes you do

bundle purchases where you pay a certain

amount and you get 10 nfts or you sent

out 4 e you get 10 nfts make sure the

software that you're using know that 4 e

needs to be split between those 10 nfts

for example and you don't sit with nine

nfts with alter cost basis sometimes you

burn nfds to get new nfds so that's kind

of a mint burn transaction now you have

to manually carry over the cost basis of

the nft you're burning to the nft that

you're minting otherwise you're going to

sell that nft you minted for 10 e later

and you're going to have a zero cost

basis so you're going to pay tax on the

full price and after all this you still

have to understand inventory methods and

liquidity pool regulations so what do I

mean by that so for example if I bought

Bitcoin in 2016 for $500 and I bought

Bitcoin in 2023 for $20,000 and I want

to sell them today at $70,000 which one

am I selling the one that I bought at

$500 or the one that I bought for

$220,000 or in the case of liquidity

pools if I provide liquidity and I get

LP tokens back is that a taxable event

well let's see what Chris says when

you've now figured out all of your data

you've reconciled every transaction you

must understand the relevant inventory

methods that is allowed in your country

back to our example we're selling one1

Bitcoin that we purchased in 2018

adustment to the example is we purchased

more Bitcoin every year and here and

there and there and we're selling our

first Bitcoin now which Bitcoin am I

selling is it my oldest one is it my

most recent one is it my most expensive

one or is the average of all all my

Bitcoin now this is country specific but

if we use the us as an example you can

use First in first out l in first out

highest in first out and average cost

basis so then that Bitcoin if I use

First in first out that Bitcoin comes

from my oldest Bitcoin so my holding

period is longer but my cost basis might

be smaller so my gain bigger if I use

last in first out I'm selling from my

most recent purchased lot of Bitcoin

highest in first out I'm selling my most

expensive Bitcoin so my gain is smallest

but maybe my holding period is also

shorter so now I'm into shortterm tax or

I can use an average and that is of

course just an average of your crypto

and this on countries some countries

make it simple like Germany you're only

allows to use First in first out UK only

allows to use average cost with shared

pooling Canada you only allows to use

average cost Australia bit more

complicated if you seen as an investor

you can use First in first out last in

first out highest in first out or if

you're seen as a trade that has to be

first in first out but you need to

understand what your country allows so

that you can play around and see what

works what gives me the most tax optimal

situation for my data and not be blinded

by that also check how does this

influence your short-term gains versus

long-term gains because in Germany if

you can go more to longterm you don't

pay tax uh in the US longterm you pay a

lot less tax etc etc so you have to

understand the inventory methods then

you also have to understand your

country's specific stance on things like

liquidity pools uh staking pools Etc

because if you look at any gray area

when you for example enter a liquidity

pool with usdc and eth and you get an LP

token back is that a taxable event or

not if you're going to be conservative

you're going to take that as a taxable

event if you're going to be more

aggressive because it's gray in your

country you can argue it's not because

you still own that underlying pair now

you want to make that a non-t taxable

swap where you transfer the cost prices

of that underlying pair to the lp when

you exit do the same so you only realize

that gain or loss when you actually

trade that for crypto or Fiat and then

if you have crypto in a rebasing

protocol you're going to see on the

software I'm now taking this out of my

protocol but there is a missing cost

basis because they say I'd never had

that much crypto because it doesn't

account for the rebasing so now you have

to manually adjust that rebasing and

handle that as income and this is all

good and well but if you are a proper DJ

or if you are an OG DJ you're sitting

with a situation where you have to do

this for 40,000 transactions since 2017

and I honestly think some people just

give up and they're like okay I I'll

rather take jail time now if you're

clear and you're done and you say you

paid all your taxes you're done what do

I do going forward so I don't get into

this crazy mess but number one you got

to keep track of all the wallets and

exchanges you use have an Excel sheet

put in the wallet addresses put in the

exchanges put in everything that you

need to be able to recover the

information any time number two through

that keep track of all your transactions

and holding periods so prepare for the

tax year if you know that you have held

something for more than 12 months you

might want to consider selling it if you

know that you don't have these rules in

your country you might want to consider

selling earlier also if you have a lot

of loss on different positions you might

want to consider selling them writing

that off as capital gain and leveraging

that on the coins that you have massive

gains on but of course other than

everything we talked about there are

additional tips that Chris is bringing

us that can help us minimize or

completely wipe off our taxes we need to

talk about tax loss harvesting so what

this means is I've made I'm in the

current tax year my eth position is

looking amazing I'm planning to sell

that or I have sold it and I made

$100,000 gain on that my xrp position is

looking horrible so I haven't sold that

but I'm sitting with an unrealized loss

there of $100,000 so that means I my

inventory that I have of xrp let's say I

have 100 tokens I paid for that $200,000

way back it's now worth in the market

$100,000 but I haven't sold it I have

sold my eth and I sit with $100,000

gains the moment the tax year tick over

the next tax year there's nothing you

can do about it but what you can do now

is sell that xrp so that you get get

that loss on your books and that loss

will now offset the gain that you made

on your e only thing to keep in mind

here that's what we call in some

countries wash trading what you need to

keep in mind is your country specific

rules in the US at the moment because

crypto is not classified as a security

wash rules do not apply so you can sell

your xrp immediately buy it back that's

your investment thesis to still have it

and you just put that loss on your book

you've own only incurred a network fee

but you got that loss on your books um

in some countries it it is a bit a bit

different like for example in Australia

you cannot buy back that same asset

within 30 days then that loss is not

going to be counted so if you sell if

it's uh your xrp that you're selling you

have to wait 30 days before you buy it

back you can trade your xrp for

something else like salana or whatever

in Germany there's also currently not

wash trading rules so you can sell

immediately buy back UK 30 days South

Africa 45 days Canada 30 days so that

depends in your country but this is the

single thing that we've seen where

people consistently wipe out their

taxable gains legally if they understand

this you can so easily create those

losses on your books proactively same

thing in the US or some other countries

also if you sit with a bunch of tokens

that you paid $100,000 for being rugged

or whatever you cannot even sell it

there's no liquidity that's not a loss

that you can deduct you have to get rid

of that token you are allowed to send it

to a burn address because now you cannot

access it anymore and that's a loss

right there if you're sitting with a

bunch of nfts that you know that

project's dead you know this thing will

never rise up again but you paid 5 e for

it there's websites where you can

actually sell that nft for almost no eth

just to get that loss on your books or

you can burn that as well but by just

doing this proactively you you're

getting the losses on your books because

you now understand gains and losses so

this makes a massive difference kind of

proactively tax loss harvesting and then

also as I as I mentioned before just

being cognizant of your cost basis and

your holding period so when you make

this trade you are aware of what the tax

implication of this will be even if you

just understand what it will be roughly

that also helps a lot and then the big

question what about Polo digital

residency and stuff like that now if you

have not heard there is an option where

you can get a digital residency in for

example palao and you can kyc to an

exchange therefore avoiding paying taxes

I thought this was a fantastic idea but

Chris thinks otherwise I think that is

definitely has its risks of course

because it's it's all good and well but

if the IRS says it's not good and well

then it's not good good and well so it

depends your government many times you

call that you have two things you have

tax avoidance and tax evasion tax

avoidance is legal tax evasion is not

legal so many times what we hear tax

authorities say is phrase substance over

form so you've set up this form that you

are not a tax resident here but they say

substance is which roads do you use

which Public Schools does your children

go to which medical systems are you in

that is where you are paying tax you are

using this resources so be careful

because with those things we've seen

people being so confident in these forms

they've set up and then six years later

they absolutely screwed um so be careful

with those things I think a lot of it

it's it's it kind of aligns with with

Dows where are Dows taxed because it's

know decentralized lot of views on that

but typically tra Tres always traces

back to some Source or person involved

that is where you're going to be taxed

so I would say it's much better to be

compliant not try and do anything fancy

but once you are compliant be as

aggressive as possible with tax

optimization that's ultimately part of

your apy and then there was one last

thing I really wanted to know and that

is what comes next regulations will take

some time they are very hesitant to

bring out regulations while they don't

understand crypto well enough and then

having to amend that regulation so

that's going to be most countries last

steps giving official regulation

amending their tax act for crypto that's

going to be the last step the first step

we're seeing is enforcement where they

are partnering with private companies

they are pointing people from the crypto

industry to understand better and now

they're going to enforce and that's what

we're seeing with the IRS court cases

with court cases in other countries

they're saying give us this data we want

to understand because they know there's

a lot of unpaid taxes there so

enforcement is one thing we're going to

see over the next 2 to 5 years is a lot

we are going to see start seeing

movement on on tax acts being amended

like we are starting to see in some

countries now we are also going to see a

kind of an upskilling of the staff of

tax authorities so that they understand

that better and then of course the other

thing is the relationship with

centralized exchanges and the government

is changing all the while South Africa

is now before the end of this month they

are actually approving 60 centralized

exchanges under the normal Al Financial

regulations here and that changes the

relationship with tax authorities as

well so we will see a lot of guidance

coming out not amendment of tax acts yet

some countries we are but not a lot but

enforcement I think enforcement is

definitely the next phase I know I know

but we are at the end I'm sorry don't

shoot the messenger shoot the message I

know it's been tough I know it's been

long I know it's been difficult to

digest but I think we needed to talk

about it if you have watched this video

through the end I salute you thank you

so much for watching if you got any

value out of it please smash the like

button let me know in the comment

section if you learned something follow

me on Twitter I bring you moneymaking

tips every single day check out the

thread I wrote on taxation on my Twitter

page which summarizes everything that

we've talked about if you're there smash

the follow you won't regret it and most

importantly pay your taxes for real for

real thanks for watching I'll see you in

the next

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