Crypto Margin Trading, Strategies and Taxation

Crypto Margin Trading, Strategies and Taxation

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Hello. Everyone this is Sal from Bitcoin taxes, welcome to our podcast each week we speak to an expert with knowledge related to cryptocurrency, taxation. Our guests all have a unique perspective or, expertise, related to cryptocurrency taxation. John, stead a CPA, and financial accountant from Coulomb in law is joining, us today John. Has been working with crypto for a few years and has quickly gained an expertise, in the field John. Will be sharing some of his expertise, about margin, trading and high volume trading, John, thank you for being with us today hi, sound thanks for having me of course, and can, you tell us a little bit about yourself. Sure. I'm. A CPA, and my. Real. Expertise. Started. Out with financial, accounting, which means instead. Of doing tax returns or performing, official audits I take. Raw data and format. It into, financial, statements, that are useful for a business owner to make decisions, and I. Started, working with lawyers who, wanted to prove cases. In court, or to the IRS and, so. I would. Take law data and format. It in such. A way that it is useful to serve as evidence and so. That's my background with. Accounting. And then, there's. A few lawyers who have found that this is extremely useful for crypto-currency, accounting. And in. Particular. The. Guy I work with all the time Alex googleman he does cryptocurrency. Representation. And so I'm his you. Know in a way I'm his, mechanic where I go into the raw data and render. It useful for him to make a case or to, fill. Out a tax return and how. About your opinion on cryptocurrency. In general. I. Like cryptocurrency. I find. It extremely interesting I, especially. Like the Bitcoin white paper I. Remember. Very clearly, what. The world was like in January of 2009, and so I I, feel, like I can empathize. And relate to the concept that cryptocurrency. Should, serve as a transfer, of value between. People, independent. Of an, authoritarian. System, or an, entrenched banking, system the. Thing I'm most interested, in these days is the utility tokens. Where, I feel like a lot. Of. Technological. Constraints. Can, be solved, by using cryptocurrency. And. That's. Where I think cryptocurrency. Will eventually, go it's it's the blockchain. That's, the really, crucial, aspect. Of these assets. Right. And every every, business nowadays is is jumping, on the blockchain bandwagon. And trying to find some use for it which is a great thing and like, you said the blockchain has plenty. Of utilization. So, I think it's been a large, jumping or not we, can imagine a supply chain that is. Certified, organic where the blockchain will, won't. Be a chain of custody. And. We can imagine that would be extremely useful because it's, auditable. By anybody. Who just logs in and looks but. There's a lot less worry, about things you. Know it's being lied to about, stuff like that right. That's, where cryptocurrency can really, flourish. In my view I agree, so, you, have an, expertise. On margin, trading which, is pretty popular with a lot of Bitcoin, tax users, so, in plain English, can you tell me what is margin, trading sure. So, margin, trading is. The. Process. Whereby you, take a speculative. Position. Using. A long, and so. If, you. Want to make a bet that, Bitcoin, is going to go up in value for, instance instead. Of clearing. Out your savings account to. Buy. Bitcoin, you, would take out a loan and use. The loan to buy the Bitcoin. That's. The, difference, between ordinary, trading, and margin, trading is that you are doing it with somebody else's, money our, margin trading loans, kind, of beholden, to the same process. As regular loans well, they have different reporting requirements. And. They're. Not going to appear like a mortgage. Most. Of the time if you want to trade on margin, you, need to have an account with a broker in the. Case of a cryptocurrency, margin. You, need only have, an account with a particular, exchange that supports, trading, on margin there's. Going to be requirements. For, collateral just, like in any loan right, it's going to be an interest, expense just like in any loan. But. For, practical purposes. For the case of your listener Sal. They're gonna need to set up on a margin, account with their particular crypto, currency, exchange, okay. And you. Talked a little bit about a long position can you describe, what a long position is in more detail, sure, in, plain, English if, you want to take out a long position on margin, let's. Say you think, bitcoin will go up, borrow. $1,000. From a bank and buy. Let's. Say one Bitcoin Bitcoin. Trading at a thousand bucks great then. Wait. Three months at, the. End of three months you. Have one. Bitcoin and, you, owe. $1,000. Plus interest, at. The. End of three months if. Bitcoin. Has gone up in value let's.

Say Now bitcoins, trading, at $2,000. Sell. The Bitcoin, now. You have $2,000. In cash and you owe, $1,000. Plus interest, pay. Back $1,000. Pay. The interest, let's, say it's a hundred bucks and keep, the change, that's. A, long. Position on margin in absolute. Plain English, I think, that's a great easy explanation, of, a long position we. Should mention though they'll still have to pay a capital gain on that long position, correct yeah. So the tax implications start, getting interesting. You. Have the the interest, which, is, denoted. In, this business as the margin, fee but, its interests, are long that. Is deductible. Under, most. Circumstances and. So, you have to keep track of how much interest you pay because. Can deduct it also. The. Gain, which. In this case would be $1,000, is. Taxable. So, you have. Closed, a futures position, and so, you have. Short-term. Capital, gain earnings. Of. $1000. Because your. Position closed, and you're in the money so. You, have $1000. Gained and you, have $100. Deduction. The, gain is futures. Position, earnings, and the, deduction is margin. Fee which. Is interest. So, in this in this example you're saying that you would take the $100, interest off of the $1,000, gain and overall you would have a $900, gain am i understanding that correctly yeah. Your your nets a $900. But the net is two pieces of the puzzle which is the raw gain so, thousand, bonds and, the. Interest, which is 100, pounds how. About short, positions, so. Short positions, are, much. More fun and much more, dangerous. Let's. Imagine that you want a short bitcoin, bitcoin. Is trading at a thousand bucks today you, borrow one, Bitcoin. Let's. Say you borrowed from somebody that owns. Them so. Now you're holding one Bitcoin and you owe one Bitcoin, sell. The Bitcoin for a thousand, bucks and then, hold the cash and then, wait three months at. The end of three months you are holding a thousand, dollars cash and you, owe one. Bitcoin plus. Interest. Denominated. In bitcoins, so. Let's say that bitcoins now trading for 500, bucks, you. Take $1,000. Cash by. Let's. Say one point one Bitcoin for. 550. Pay. Back the, one Bitcoin that you owe payback. Point, one Bitcoin in interest, and, keep. Four, hundred and forty US dollars that's. The. Short, position, where. You've borrowed, what, you think will go down sold. It for dollars. Wait. And then. Buy it back cheaper. And, pay. Back your interest and keep the change. That, is a plain, English short and that. Makes perfect sense so basically, a short, position is essentially. Betting. On failure where a long position is essentially betting on success, of a coin, precisely. Right and and in the parlance in the case that you are buying. Options, instead of a straight-up short, or long. The, option, is that you get to take. The position, under certain positions a call. Option is the long position, and a put. Option is the, short position, and I. Remember, this why you call, someone up and you, put someone down. Interesting. Nice that's a great way to remember it yeah, I still, need to remind myself I still count on my fingers to it like that. So. How, overall, do short positions long positions, how, does a margin, trading overall work so. The the way it works you, don't take a loan from a bank either you don't go. Out and borrow one big coin from your buddy the. Way it works is that a brokerage, house has, a, ledger, and, that's. How, it goes these. Days you, don't actually transfer. The asset, so, let's. Imagine that you, call up your brokers and you, say I I want to go along on Bitcoin and I, want to do it on margin they'll say ok good, we have it recorded, we, have you recorded, as long Bitcoin for a thousand bucks great see. You later and then they, just make a note in their ledger, you, know John's in for a thousand, four bones. Long Bitcoin as of this date three. Months later they, just checked the price of Bitcoin and then. Tell me oh you. Won here's, nine hundred dollars it, that's. A thousand dollar gain with a 100 dollar interest feet or they, say hey, you lost you owe us you, know three hundred bucks and. The three hundred bucks would be you, know pure, interest on. The loan and and you pay, the thing back so. You don't actually take, possession of the assets anymore the brokerage house just keeps a ledger this. Becomes. Important. For us. Sal. And especially your listeners, because, that. Ledger is a. Cryptocurrency ledger, and it comes directly out of an exchange and we have to be able to understand. What, the ledger is saying in the. Case that we're going to aid to our accounting, and be. Reported, correctly on a tax return yes. Absolutely and I know that you said that you do, understand, the. Margin, trading Ledger's, which many people do not understand, so can you talk, a little bit about how, margin, trading shows up on a ledger and how to interpret, it sure. Sure, the one that I that, I find the easiest is the Krakken ledger so, I'll use this as the example, all of the other, exchanges.

That Do margin, trading are roughly, similar and you can check their FAQ, tab they're frequently, asked questions, and you can see how, they're reporting, but the the Krakken ledger is. Absolutely. Easy, to read and if you understand, how it works in cracking you, can understand, how it works on the others so when. You export a crackin, ledger, it's, gonna have every, transaction, that you did, the. Trades are gonna come up in two pieces and, the. Category. Is going to be called trade so. Let's say you bought ether for a thousand bucks it'll say trade, ether. One, and then, the next line down will say trade, US. Dollars, -, a thousand mm-hmm, now on the margin, side there are two. Categories. That, will show up one. Of them is called, rollover. And the. Other one is simply called margin. Now. Let's. Take roll over first if you, are trading on margin and. You. Don't cash. Out your position, you're. Essentially, letting, it ride, so, if you go long on Bitcoin and you win and now. You've got point to Bitcoin in your in your exchange and you want to let it ride and bet, again you're, gonna be charged to rollover, feet and. The rollover fee is basically, the. Vig and. So. The, rollover fee is going to be, denominated. In, usually. Cryptocurrency. And. There's. Just going to be a giant ledger full of them anytime. You see rollover. A margin. Trading or at least in this case crackin ledger. CSV, file the, rollover is fee, precisely. Right if. You're using Bitcoin dot X to do your accounting the. Way you. Would report a rollover, fee is you. Would report it as a sale. Of cryptocurrency. And, you, can report it as a sale for fiat and that's, because you have disposed, of your cryptocurrency, in exchange for a service in this case the service is rolling. Over your. Bet into a new, futures, position, but, you. Will need to remember. And, probably. Keep track in another ledger that. You had a fee. Of X. Number, of cryptocurrencies and, that's. Going to be a deductible, fee, and Bitcoin. Tax has tabs. For income, and expenses, where. You can load income. And expenses, denominated. In crypto currency, and you need only have the date and the. Quantity, of cryptocurrencies, and, Bitcoin. No tax will tell you the US dollar value, of that, transaction, so, if you have a legend, full of rollover feeds you. Would love, these as sales. Of, cryptocurrency. Into. Your Bitcoin tax account, and then. Separately. You, would load the, quantity. Of crypto currencies, and the dates on the, transaction, into. The expenses. Portion. Of Bitcoin not tax and Bitcoin, attacks would tell you the, dollar value, of your rollover, fees and you would deduct that on your tax return to, clarify you. Would recommend that users would then remove, the, items. From the spending, tab because if they enter them into the trading terrorist cells the, rollovers, as sales then they also enter them into the spending tab just, to get the dollar value, they'll, need to remove them because otherwise it'll, be recorded, as two cells of the, same rollover. Yes. And this. Is where the, nuance comes in where you know there's, a reason why I make a living doing accounting, with cryptocurrency right it's, complicated, but, for, practical purposes, the critical. Thing to understand, is, when. You pay a fee in cryptocurrency, you, have sold your cryptocurrency, and. Oftentimes. Fees. Are deductible. So. Just like a bank transaction. Fee is deductible, to an ordinary business, a rollover. Fee is deductible. Against. Margin. Trading earnings, and so. You have to be in, a position to find out a what. Was your gain or loss on the. Disposition, of the cryptocurrency, in this case paying out point, one Bitcoin as a rollover feet and then.

Also What. Is the dollar value, of that fee so that you can deduct it okay, right, like you said cryptocurrency trading, and doing, the taxes. For crypto trading is certainly complex and then adding in margin trading makes it even more complex so I'm, glad people like you exists in services like Bitcoin that X exists yeah. And. Then, so you mentioned, that there were two main, things you'd see you'd see rollovers, on the Krakken, ledger, and then what was the other thing that you would see the, other thing that you'll see is just, simply called margin. And the. Category. Margin. Is gonna, have a. Quantity. Value and the quantity, value will either be positive or negative and it'll, have a denominator so. If you look in your crack and ledger and it says margin. To. BTC. That, means that you took out a margin. Position, and you. Won, your, bed and your. Winnings, from that bet are two Bitcoin. Additionally. Next. To it will also be a fee, and the. Fee will often be denominated, in a cryptocurrency as well the. Fee, that, is on the line. That is margin. Is your. Interest, now it's. Called a margin, fee in ordinary, parlance but for in real terms its interest, you, borrowed, to make the bet you got to pay your interest so. If you, look at a Krakken ledger and you. See category, margin. To Bitcoin. Fee. Point. One Bitcoin. What. Has happened, is you won a speculative. Position, your, winning is to Bitcoin and, your. Margin, fee is point, one Bitcoin in terms. Of the accounting, this, is where it gets slightly, more complicated you, now have two, Bitcoin, and you. Might have to ask what, is my cost, basis, for this Bitcoin because, later you're gonna sell it so. You're. Sitting on two bitcoins, and you need to know a when, did you get them and B how, much did you pay for them, the. Answer is the cost basis. Of your. Margin. Trading earnings. Is, the. Fair market value of your earnings. On the date, you earn them, so. If Bitcoin is trading at a thousand bucks a pop and you. Win two Bitcoin, on margin. Your. Basis. Is a, thousand, dollars per Bitcoin for, those two Bitcoin, and so. In Bitcoin tax you. Could book, it as a purchase. Of. Bitcoin. On that, date and then. In your Bitcoin titanic's ledger it would be carried. As, yeah. These two Bitcoin were bought for X dollars on, this date and the. COS basis, would be correct however. You. Also have, to pay income taxes. On those in the year that you want it so. This, is where you could then use the income, tab in Bitcoin dot tax and, plug. In to Bitcoin, on on such-and-such a day and it'll tell you the US dollar value, of your, margin. Position earning now, as you mentioned earlier the nuance, is that you don't want to double count right, so, you. Want to be careful, about how you're using your Bitcoin on tax accounting, system or you know you could get a professional to do it but if you're. Doing it using Bitcoin tax you have to be really careful that you a, your. Inventory. Ledger of crypto currencies does not double, count anything and be. That. You are. Cognizant. Of all of, the report, all events, so, in the case that you. Win two bitcoins, on a margin, trade you. Have to, establish the cost basis for those bitcoins and then, also pay, income taxes, on the.

Futures. Position, Ernie, okay. And I wanted to just clarify something you said earlier on the ledger you had mentioned that let's, say you win, as you said to Bitcoin from, your trade and then there's a fee of the point one Bitcoin now, that to Bitcoin that it shows on the ledger is that overall, what you had and so you you actually are in two point one Bitcoin and the, fee or the interest, of 0.1, Bitcoin has already taken out of that figure or in reality did you gain one point nine Bitcoin. It's. It's listed, gross so you won two Bitcoin and then, separately, you had to pay point one Bitcoin in interest got, it and so, if you're if you're cracking, ledger says margin, to Bitcoin point. One Bitcoin feet, you. Have, a, taxable. Earnings of two bitcoins, and a, deductible, fee of point one Bitcoin it's it's listed, gross got, it thank you for that clarification and, then, you know obviously the the reverse is true here if it says margin, -. To Bitcoin fee. Point, one Bitcoin you. Lost your futures position, you. Had to, dispose. Of to Bitcoin and you. Had to pay a interest. Of point one Bitcoin and in this case you have to book that as a sale, a bit corn because. The, Bitcoin. That you lost, while. You, held, it it. Either gained or lost - in street value and then. On the date of loss it, is a, taxable. Event just, in virtue of the fact that you are disposing. Of cryptocurrency. Right, the, really. Particularly. Wants, of margin. Trading with cryptocurrency is, the independent. Of the, speculative. Positions themselves. The. Cryptocurrency. Itself. Is treated. As a speculative, position, as well and so, your you, have two bets running, at all times. Complex. Stuff yeah. Yeah. So. You clearly, know, about margin, trading so can you for, anybody that's listening can you maybe talk. About some margin trading strategy, that might benefit people sure. So, as I've, mentioned before my understanding, of speculative, positions comes, from the fact that I dealt blackjack, for a year when. I was in college and so. If you deal blackjack eight hours a day five. Days a week for, a year you. Figure, out how. Does, betting, work generally. Right and so, I'll. Say this what. What a lot of people's strategy, when they play blackjack is, they. Know that the house is a little bit raked, you know it's it's roughly a five percent loss rate and so. What they want to do is come in put. A bunch of money down maybe, they win this bet and then they want to bail that's. Nice but. The mathematical. Certainty of blackjack, is that the longer you sit at the table the more money you're gonna lose so, I'll say this if you're, out there and you're thinking about trading, on margin, and your, thought is the, same as somebody approaching, a blackjack table, which says most. Of the time people lose but, maybe I'll get lucky just, don't do it you, know if you want to go to Vegas and have fun go to Vegas have fun put a thousand, bucks out there play, small enjoy, yourself but, if you're gonna trade, on margin, this is not you. Know for a party if your, approach is just to throw money at it and hopefully something, sticks you're, gonna lose your money but, there's. Another, approach and, the, other approach is to take it like a poker player now. A poker. Player needs, four. Things in play. All of them have to work in order to win a poker game the first, thing you need is a strategy, and the. Strategy has, to actually be good if, your strategy isn't gonna work it doesn't matter you're gonna lose money that's how that's gonna go but, let's just presume that you have a strategy and. Your strategy is going to work an example, of this in cryptocurrency would be you. Could see that ether. Serves. As a platform for, tons of derivative, tokens. And. You're looking, at your er c20 wallet and it should blow it out with all different kinds and so, you could say to yourself well bitcoin has no such derivative, tokens. And so ether. Might be a better, long-term bet, than Bitcoin because. Bitcoin. Is clunky, it takes a couple weeks to really post a trade to the blockchain. There's. A limited number of them they're gonna run out in another 4, million Bitcoin or so so, you could see that and say all right this is the components, of a strategy, which. Is understand. What the bet is, the. Second thing you need in order to win on. Margin. When you're approaching this like a poker player is discipline. Because, anybody. Can write down a strategy. And believe it but. When things, start getting difficult a lot, of people second-guess themselves right, and you can see this at an actual poker table, you, know if you're playing Texas, Hold'em and you come out on the flop and you're in it you're in the pot things are going good when.

The Turn comes up a difficult, card now, is not the time to try and relearn how to play poker you, you, have to have your strategy and it has to be the one you work all the way through your trade, so. This is. The. Discipline, aspect right and when your trade doesn't work use. The feedback and reorient. Your strategy, but don't go reorienting. Your strategy, mid. Trade that's like trying, to reorient your golf swing in the middle of the swing not, the right time for that so basically don't don't, rely on emotion, at that point stick to your strategy right, and there's a there's an old phrase I was in the Marines for four years there's, an old phrase we used, to like to say it's, the French phrase son, flop and, what it means is cold blood, yes, when you go into this game if you don't have cold blood, don't, trade, on March and you. Need to keep your head cold. So, that's the the discipline, aspect the, third aspect that you need is patience, if you. Don't have any patience, you should not be trading on large and that's. Because, if, you don't have patience. You're gonna go doubling, down on your bet while it's still, not. A good idea right, you need to have a long, term strategy. Approach. You approach it with discipline, and also. Let, the strategy, work in real time and beat ancient about the. Last thing that you need is liquidity. Which. Is to say you need cash to back up your game the. Example from poker would be if, you're, a good poker player you, have your proper, strategy, you're, a disciplined. Cool-headed poker, player and also. You have patience, you also, need, the chips to. Ride out a bad. Poker players lucky, streak because, any, bad, poker player can hit a pot once or twice it's, gonna happen and if. You are a good poker playing you don't have the chips to ride that out it. Doesn't matter that you're right in the long term you're, not going to be able to ride it out in the short term and the. Example, from cryptocurrency, is let's. Say that you want. To go long on each short, on Bitcoin you. Think bitcoins going to go down relative. To ether as, you. Go sitting, on that trade you're. Gonna have what's called margin, calls, if the, bet isn't going your way in the short run which. Is to say you, have to post greater, and greater collateral. While. Your trade is live, if. You don't have the, currency, to post as collateral, you. Will lose your bet even, if it was the right bed in the long run and so. All. Four. Of these aspects, have to be in play if you're going to be a successful, margin, trader and those aspects are you have to have a solid strategy you. Have to have discipline, and the cold blood. To, put that strategy in play you, have to have the patience, to let the strategy, work and you, have to have the liquidity to. Back it up so that in, short-term aberrations. You can write them out that. Is an invaluable, strategy. And, to. Go off the gambling analogy, as they say you, don't spend $1,000 gambling, if you can't. Afford, $1,000. To gamble with if that's gonna hurt you to spend $1,000, gambling, if it's gonna put you in shambles, financially, you, don't want to gamble that $1,000. And I'm assuming the same applies to, margin. Trading yeah. You, know and if, you earn your living margin, trading. Let's say there's. Plenty of people that can do that it's it's perfectly. Respectable living if. You earn your living with it you, need to hold and reserve, enough, currency, to support your positions, for the life of the positions, and you. Also need to engage in. It with, such a conservative. Outlook that you'll still be able to pay the rent right, a month and you'll still be able to pay a phone bill and it's. Important, to know that when you're trading on margin you're. Trading with other people's money and there's, a social, risk as well and so. If, your listeners are interested, in a really quick like, Wikipedia, dive, look. Up the hunt brothers, when. They tried to corner the silver market it's, an absolutely, perfect test, case on, people. Going long on margin, and then blowing, up the world because. They, made a bet with their with other people's money and it turned out that when. People realize just how deep these guys were in it was, affecting, the entire financial system, and this is I, think back in 1980, like. This is way before 2008. And. The phrase, too big to fail was floated even that hmm. So if. You are trading on margin just, bear, in mind if, you're, a cryptocurrency trader, there's no bailout for you so keep. That in mind with with what you're doing and be. Conservative, you got to pay the rent you know you got a you got to eat so. If this is what you do for a living, you can't put the entire farm on one bit that's just not gonna work right you don't want to be the, homeless.

Guy That's well versed in margin trading yeah. Yeah I mean how, many times have we seen a Wall Street trader just, wearing a barrel and just wandering, around the street, so. I want to pivot topics, a little bit you really gave, some excellent information about margin, trading, you, kind of defined it for people that aren't super familiar with it and for anybody that was familiar you gave some really good strategy, tips really excellent strategy tips so I appreciate, that I'm sure our listeners appreciate, it I want, to move on to high-volume, trading, and if, you can talk a little bit about high-volume. Trading, in general, when it comes to cryptocurrency sure. So, what a lot of people do with high-volume trading, is they'll go into their exchange they'll have a solid. Cache of cryptocurrency, and. Then, they'll set parameters, for automatic, trading will set limits so let's say if ether. Is you. Know within five X of a Bitcoin I want to trade give. Up my eat Bitcoin, and buy ether, and so, what they'll do is they'll set price, limits, for, automatic, trading and. This. Will come up in the ledgers it'll sometimes say limit, by or limit, sell and. Ordinary. Traders, do this too if you're buying IBM, stock or whatever the. Only difference. In, high. Volume trading, where you're setting a parameter. And just, letting it automatically, trade, compared. To somebody that's actually clicking the button each time and buying ten. Bitcoin, or buying. You. Know twenty. Ripple tokens the only difference is the number of, transactions. And the. Overall volume of transactions, now, in. My work with. Aleks, googleman I think. We've seen maybe five hundred thousand, transactions. In a year, that was the the highest volume that we did somewhere in that neighborhood and, so. We Alex. And I are limited, by the. Strength of Microsoft.

Excel The. Same is true of somebody, using Bitcoin on tax that they're. Gonna have to render, their. CSV. Exports, into the Bitcoin tax format, or. Upload. It raw as its exported, like if you have baloney acts and you have a hundred thousand trades you can just upload your ledger into Bitcoin dot X but, they'll have to pay the fee because, Bitcoin dot tax you know you have a specific number of trades that you're allowed right, if somebody, has a million. Trades which we do allow, for you're. Gonna have to pay a little bit more money than the guy that has 40 trades sure, and in a purely, taxable. Transactions. Respect, if you, trade a million times or you trade once it's. The same principles. In play, insofar. As you're an ordinary human, being and then that's the tax return okay. And I figure anybody that has those high volumes, of trades if somebody has a million, trades they, should almost absolutely, be using, multiple, different types of services for, example they should be and, of course it's up to them but they should use something like Bitcoin that tax they should hire somebody like you guys to make sure that they're doing things right they, need to make sure they have a team that they're using in order to avoid, audits, and make sure all the data is right yeah. Yeah and you know you can you can see this with the. Coinbase summons, right, well now if, people. Had just a small amount of transactions. They weren't subject to that summons it's. The it's the people with either a high dollar value, or high volume that. Are essentially. Visible. To. A bureaucracy like, the IRS so, somebody who's trading, high volume I would, say that their, risk. Of audit. Is higher in virtue of the volume, and. It's. Fine to trade in that volume you just have to have your ducks in a row you know right, be aware that you may be at, risk and, if you do get audited then, make sure you have all of your documents. And make sure you're recording everything properly, yeah, or higher Alex, you know you, and we'll just go through and do all the work and, we always tell people any, type of trader to always download and export, their files. From, their exchanges that they're using export. Them regularly, because sometimes exchange is shut down and then you don't have any records, of those transactions, and then when you have to go and prove to the IRS during, an audit you know your cost basis, or when you acquire these claims if you have no records then you, know the burden of proof is on you and you're kind of screwed, in that situation, yeah. Sal this, is an excellent, excellent, point and I'll tell, you the, hardest part, of my job as a cryptocurrency accountant. Is dealing. With missing records, mm-hmm, and, Alex. And I I've seen as a bunch where. There's. Times where there's just no, records, but we know something must have happened right, and working. Through that gap. Is. Incredibly. Difficult because we essentially have to perform an analytical. Posting. Of implied, trades, and. When. That happens, in, the case that we're representing, for an audit we, we have to convince, an auditor, that our, analytical. Work is correct, rather, than just showing a straight-up CSV, file exported, raw and so, you you couldn't have made better point and anybody. That's trading, cryptocurrency. Export. Your records please, because. If you have all of your records my job is going to be really relatively, routine and, you're. Going to save a bunch of money on the. Preparation, but then also it's. So much easier to prove to an auditor, that we're doing things correct usually, just show the records show, our reports, and see that they line up the, end right. It's a necessity if, you're trading cryptocurrency, you, need to have your records you need to regularly export, your records it's at this point it is absolutely, a necessity and traders, need to start doing it regularly I think yeah. Yeah, it's, like the old saying if you, don't have the proof to prove your case you just get what you get yeah, yeah, absolutely and in this case what you get is a super high tax bill right, so. Not. To mention a high accounting, bill, but. I really don't want that kind of right. Right right it's more work for you anyway so yeah. So, final, question regarding, high volume trading, you, kind of talked about it a little bit but are there any different. Tax regulations, for high-volume traders than regular traders, there, is something, that's called a mark-to-market.

Election. Which, day traders, can sometimes, take however, it's a really nuanced, tax position, the, rough explanation. Of it is that you, take the inventory, at the beginning of the year and tickets, dollar value, take the inventory, at the end of the year and tickets a dollar value the difference, is your taxable, earnings or loss the, the regulations, governing this are long detailed. And difficult. To interpret in terms of cryptocurrency. That's. The only thing that would separate, somebody, from an ordinary. Human, being just trading cryptocurrency okay. It. Also, is, on, the, sort, of the tip of the spear in terms of regulation. And so. If somebody. Wants to take a position like that they, ought to be aware that they are on the front edge of that right, the, IRS. Hones. Its, regulations. By conducting. Audits and so, if you are on the, front edge of an. Accounting. Position to the IRS. The, IRS is gonna figure out what it wants by auditing, you and taking you to court and. Then you know this is the same thing you've had guests, talk about like-kind. Exchange, for, years before 2018, things. Like that where when. There isn't regulation, if the. IRS doesn't want to write the regulation, they'll just have a court case and let that be, the precedent, and. You, don't want to be the guy in the court case it's, just. It's, not a great way to live right, and from. My perspective I, think it's always best to follow the most conservative approach, when, it comes to filing, your taxes for example using, FIFO is probably the best way to calculate. Them, it's, usually best to follow the most conservative approach, even if that means less, money for you it means less risk for you yeah. And you know there's there's. Ways in which you can take a fairly. Aggressive, stance and still, be conservative. All, right well you have provided, us with a ton, of great, information John, I really appreciate, it thank, you for joining, great. And what, is the best way for somebody to reach you so that they can get some of your expertise, to. Themselves sure, well I work for Alex, Kulemin in the case that you want to talk to me. You got a call Alex, he's Alex, at Kulemin law comm I, think, he's on Bitcoin dietetics, if I'm not mistaken I'm sure, you could put him up on the link, yeah. We'll have all that we'll have that put, up in the write-up for everybody yeah and then so if somebody even, if you want like a 20-minute phone call with me you. Know call Alex set it up through Alex and he'll, put it together and the benefit of that is obviously then the attorney-client. Privilege extends, to me through Alex because CPAs. Don't have a CPA, client, privilege so that's helpful and also. It's a way that we. Can, make sure that all of the advice you get is backed up by a lawyer rather than just an account all. Right that was great John thank you so much man yeah, man it's my pleasure thank. You everyone for listening to the Bitcoin Texas podcast, be sure to stay tuned for more great podcasts, discussing the intersection, of cryptocurrency and taxation.

2019-03-02 10:17

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Awesome video! it's April 13th and I'm still struggling with my margin trading, I did it way too much, and it's a compete mess now. I'm using Bitcoin.tax, I used it last year too, and this video helped me big time.

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