You think you’re slick.
You’re not slick.
I’m part of a handful of crypto groups.
A lot of them (especially the Bitcoiners, because freedom) are not going to be paying any taxes on their crypto gains this year or any of the years coming.
And they’re bragging about it!!
“This is part of what crypto is” they tell me.
“There’s no way for them to know” they say.
I hope you like huge penalties, consistent audits, and jail.
Because that’s your likely future.
What They Don’t Know
If I were to show those people this blog post, they would not be happy.
Because they’re wrong, and it’s not worth it.
You think they (the tax authorities) don’t know. They know.
And even if they don’t know now, because it’s the blockchain, they can easily find out later and get you for that as well.
Read that line again.
There are no statute of limitations on stuff like this. Anywhere.
The IRS, or whichever corresponding organization you have in your country may not know much about crypto or how to track it.
But believe me, they have people who do. And they’re really good at their job.
They employ the same companies who catch scammers and terrorists on the blockchain.
You are not smarter or slicker than they are.
Nowadays there is waaayyyy too much money out there in the Cryptoverse just ready for the taking (or the taxing), so why would governments just ignore it?
It’s free money for them.
They won’t. And again, if they ignore it now because it’s some banana republic government, it won’t take long for them to access all of this free money in crypto taxes in the future.
And they can and will backdate things as far back as they need to.
They can trace the wallet addresses to every single token and trace them all back to you in a few keystrokes.
Here’s how they know, watch this video. It’s short, it’s worth watching, but I’ll still provide commentary below..
- The “1990s training video” background music was not a great choice, let’s just get that out of the way now.
- All exchanges must send tax forms to the IRS. If you have your KYC information on any of these, they know.
- This is the big one — you may think you’re safe because you only use DeFi. If the crypto you received from defi ever TOUCHED a centralized exchange in its lifespan, they know.
- If you have “cashed out” or will ever consider cashing out to a bank account in the future, you better be showing them everything.
And let me repeat: I know this is US-centric information and the IRS are some busters, but no government is going to want to leave all of this money on the table when they can easily put it all right into their own coffers. So it’s coming to your neighborhood soon.
What can/will probably happen to you if you don’t do this correctly? Here’s our guy again…
- Audits…suck…ass. And if you get flagged for one because you didn’t report, the IRS or whatever your country’s version of this is will consider you a problem, and you will likely be a candidate for an audit every single year for the rest of your life.
- Keep in mind too, audits are very thorough, and they may find other ways you weren’t paying taxes that you weren’t even aware of, and penalize you for that as well.
- Because it’s the blockchain, they will be able to go back in time to previous years and ding you there too. Don’t let this spook you, just suck it up and start doing it correctly from this point on. The consequences of not doing this are not pretty.
- The 75% penalty probably won’t happen to you if you’re a low-roller, but it’s all the reason more to report now. You may not always be a low-roller in the future.
- I have no idea what the probability of prison is, it’s probably not high, but why risk it?
I didn’t become financially free so I can look over my shoulder all day (ie: drug dealers, scammers, etc). Taxes suck, but they’re a necessity for most humans, and it’s all part of the game.
*NOTE: If you have never sold at a gain, but you have staked or received airdrops at any point in time, you will need to report, because they count that as reportable income.
And sometimes you get airdropped stuff you never even asked for. This needs to get reported too.
Solutions
This is probably not something you want to do on your own. How would you even know what to do? How can you be 100% sure you’re even doing it the “right way”?
I have wallets all over the freaking place, and I’ve used several exchanges over the years.
I have used a software service before to put all of this information together for my taxman, but I was unhappy with them and I don’t even think they’re in business anymore.
So what I will do is go with another one this year, and if I like them I’ll do a write up on them and also see if I can get you guys a deal on it.
But two things…
- I don’t yet know if I’ll like them or not
- I usually don’t start on tax stuff until mid-February
So stick around until then if you want my opinion on a service.
But absolutely suck it up, get yourself a service, do it right, and be able to relax going forward.
Because as he said in the video, there are no Martha Stewart sheets in prison, LOL.
— VP