Yo what's going on? My name is Ryan, I'm a CPA. Welcome to my channel and my video. Thanks for
joining me. If you're new here I would love if you'd consider subscribing to my channel and
obviously smash the like button, just because it's going to help with the YouTube algorithms
and stuff. And of course, leave a comment down below if you have something you want to say or
something to ask and I'll do my best to answer your questions. So today I'm going to be talking
about the crypto market, and what's happening, and how it's going to affect you. Because whether you
believe in crypto, whether you don't it likely will have some kind of indirect effect on you
because you know tons of brokerage firms are, have invested money in the crypto and into some
of these exchanges that allow you to buy and sell cryptos. So yeah I'm going to talk about that.
The tax treatment, what's going on, and maybe potentially what you should do with the current
market that's going on. So what's happening now is you know since March of 2022 the crypto Market has
been been declining pretty significantly. And then it got to kind of a bottom in June of this year
and then just recently, early November there was another another dip. A more minor dip but still
pretty significant. And so what we have here is just a large crypto dip. Kind of like what's going
on with the stock market, the stock markets kind of declined quite a bit this year and so we're
seeing people panic, people sell off their their Investments, and doing all these things that maybe
they shouldn't be doing. Yeah so with the, with the decline in the crypto market how are these
losses treated in terms of taxes? So the IRS stated they're going to treat cryptocurrencies
as if they were property. So you can buy it, hold it, and then sell it. If you sell it for more than
you bought it for then you made a capital gain and if you sold it for less than you bought it
for then you made a capital loss. Simply holding onto the cryptocurrency does not incur any taxable
events. So right now if you had a bunch of a bunch of coins and then you the market tanked and you
still have those same coins, there is no tax event there, so there's nothing to be done tax wise. If
you have cryptos and you swapped it for another crypto this is the same thing as selling it and
then buying another one so that would create a taxable event. So just keep in mind, swaps or
trades create a taxable event as if you sold the crypto. And if you incur capital losses, let's
say the market tanked and you sold a bunch of your cryptos you know because you didn't want to be in
the market anymore. Now you have this, let's say significant capital loss. Can your capital loss
be offset against any of your other income? Well the answer, the short answer is just a little bit,
but not really. See capital losses really can only be offset against capital gains. That's gains that
you, that you incur from selling stocks or made from selling a rental property you know, those are
capital gains. The sale of other properties, or the sales of securities or commodities,
that creates a capital gain if you made some money on it. A capital loss is when you lose money on it
and capital losses can only offset capital gains. Now if you don't have capital gains,
or if you don't have enough capital gains, you can offset some of your other income, your
ordinary income. You can offset it with capital losses but you can only do up to $3,000 per year.
So quick example, if you've sold a bunch of cryptos and you had a $10,000 loss,
you have no other capital gains to offset your loss but you, let's say you have a regular W-2
job and that's the only other source of income. Well that $10,000 loss you can only use $3,000 of
it to offset your W-2 income. So your other $7,000 of loss gets carried forward to the
following year until you can use it all up. And if you don't have any capital gains next year,
you'll use another $3,000 against your ordinary income. And you keep doing that until you use
up your loss. With that being said, with this crash you know, what are the tax implications
of this crash? As I mentioned before, if you had a bunch of crypto, and the market crashed,
and you still have it, then there's no taxable event. You don't have to report anything. You
didn't realize a loss, you just have crypto, the same crypto that's now worth less money.
If it crashed, and you sold a bunch of it, and you realized a loss, now you know, just like before,
you have to either offset it with capital gains or you can offset up to $3,000 of it against
your ordinary income. And before we get to the next part, which is maybe what you should do,
how about you subscribe to my channel? That'd be awesome. So now, what should you do
now that the market tanks, stock market, crypto market, everything is kind of shitty right now,
what should you do? First thing is I'm not going to give you any investment advice on this channel
because that's a huge liability for me. And I'm not qualified to do that. I don't really know much
about investing except the very, very basics. So no investment advice here. No legal advice coming
from me either. And also no tax advice. I'm just going to pretty much tell you what you should be
aware of. First thing to be aware of you know, if you're trying to make a decision on if you should
sell your cryptos that have lost money. Maybe you should see you know, look in your 2022 year
if you did anything that resulted in the capital gain. Did you sell a rental property? Because I
know houses are you know, the past few years have appreciated quite a bit. So if you sold property
you might have some capital gains there. You then you might want to maybe sell some cryptocurrencies
at a loss to offset your capital gains. Another thing to look out for is if you have you know, if
you're holding some cryptos that are not looking so good. You know maybe you're reading articles,
you're doing research, and the future of this particular crypto is not looking so great. You
might just want to get out of it you know, cut your losses, get out of it before your money
completely evaporates. Do you have other forms of income that maybe you know, maybe you don't have,
you don't have capital gains but maybe you want to offset a little bit of your other income by
$3,000 of capital losses. That might be something to consider too. Just remember that if you are
realizing your losses, if you're selling cryptos to realize your losses, that is worse than not
realizing losses and paying a little higher taxes. You know because when you realize losses you're
going to pay lower taxes right? But realizing loss itself means you're losing money. You're losing
money on this investment. So losing the money is actually worse off than taking a loss to just save
money in taxes. So my philosophy is, this is what I would, this is what I'd do, I'd try to lose as
little money as possible, even if losing money creates a taxable loss for me to be, you know to
save me a few bucks on taxes. Because losing the actual money means I lost money and that's worse.
The question, sometimes I get questions from people, not nearly much at all, but maybe, okay
to be honest one person asked me what about the mark to market election for cryptos? Can you can
you elect the mark to market that you can do with stocks? Can you use that for cryptocurrencies?
Well there's not, there's not really clear guidance on this but I'm going to quickly address
it because maybe some people are wondering about this. So if you don't know, the IRS allows you
to classify yourself as a trader of securities or commodities by making a mark to market election,
a Section 475F election. And what this does is it allows you to realize gains and losses on
your securities and commodities without actually selling the securities and commodities. So at the
end of the year let's say the stock market is tanked, you still have all your stocks but you
didn't sell anything, but your stock markets, now your stocks are worth a lot less than they
did at the beginning of the year. You can mark those stocks to market and realize, and report
a net loss without selling anything. That's what this election does, classifies you as a trader
of securities and commodities so you can mark your stocks and investments to the market value.
Can you make an election with cryptocurrencies? And the answer from me is you know, I'm not
100% certain but I'm going to go with no because cryptocurrencies don't fall under the categories
in my opinion of securities or commodities. So securities are very tightly identified
in the IRS tax code. The cryptocurrencies definitely don't fall under securities. So
the next argument is that well, maybe they could be a commodities. And even though commodities are
more loosely defined in the tax code, I still don't think cryptocurrencies are a commodity.
Really what they are, they're currencies. They are virtual currencies, they're not
a commodity. So I don't think this mark to market election is a viable option for cryptocurrencies,
okay. And that's all I've got for today. Thanks for joining me. I hope you liked the video.
Please smash the like button if you liked it and tell your friends, tell your family,
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the Subscribe button if you would please. And I'll see you next time. Stay safe. Take care.
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