Crypto Tax Grab!?💰Congress Wants A Bigger Cut | CoinLedger CEO INTERVIEW

0:00 All right, guys, we're going to jump into taxes today.

0:02 First of all, do not stop watching because there are some big things happening that you don't want to miss. We're going to jump right into it with two guests. They're going to break this down for you because there's some bad things that are happening or could be happening around crypto taxes. But before we do that, I want to thank our sponsor. That's iTrust Capital, where you guys can get into your own crypto IRA, cryptocurrency stocks, gold and silver, all available over on iTrust Capital. One account unlimited possibilities. This is one of the platforms they've been around for quite a while. You guys can go over and use them. If you have a current IRA, you can transfer that. If you want to start a brand

0:39 new IRA, you can also do that as well. So just use our link down below. It's going to give you a $ 100 funding reward to get started. And you're going to have to start tax planning soon. And IRAs are one of the diversification things that you should be doing to set yourself up for success. And joining me today is Shane Kennedy, and also David Kremer coming in from CoinLedger. All right, so I want to jump over to kind of give you guys a look at this.

1:03 And the first thing I want to show is this was June of this year. It was basically Congress's plan to get into designing this tax bill. And most of it was centered around the wash rule, even though there are many other things. And I want to get into that because this is talking about 25.8 billion in tax revenue over a decade. This would make it the single largest item in digital asset tax reform ever. So first of all, tell me what is bad. What's the worst thing that's in this bill right now that as a crypto investor, I have to worry about?

1:38 Is it the wash sale rule or are there other things?

1:41 Yeah, and this has been a tale as old as time in the crypto industry. They've been trying to pass legislation to close the wash sale loophole for a very, very long time. This is no different, but it would be negative for crypto investors if it were to become law. The big keyword there is if. And of course, that just...

2:01 brings crypto in line with how securities and stocks are treated, right? If you harvest a loss in a crypto that you have a loss position in and then re-enter the position within a set time frame, you can't actually realize that loss on your taxes. And so it just makes it harder for crypto investors to strategically reduce their taxable income every year. And so that is probably the strongest negative component of this proposed legislation. There's other good things, but that's definitely the biggest one.

2:33 All right. So Shane, let's break down the bill itself.

2:38 One thing that I guess is a little bit of a piece of good news here I wanted to clarify is the safe harbor rule regarding stable coins. So generally speaking, if stable coins are trading within 3% of the US dollar, there's not going to be gain or loss recognitions. And to that point, you might be wondering, well, OK, what's the safe harbor component going to be? When's the IRS going to actually guarantee some stability with that? And so the secretary is going to make a list of covered stable coins available publicly on the IRS website. It's my understanding that that's going to be similar to their annual approved published foreign exchange rates for people that have foreign transactions they report on the return. So that's one thing

3:18 in line with trying to raise more revenue. They are trying to make the mark-to-market election, if you've ever heard of 475F. Basically, it allows you to pay taxes on unrealized gains as you are accruing them instead of just at the time that it's sold. And there's a bunch more to this, too, but to just highlight some other big things here, there's some key definitions that I think are going to alleviate a lot of the ambiguity, but also in alleviating that ambiguity is, It's going to give some investors some pause here in terms of, okay, what exactly, how are my crypto transactions going on here? So it's clarifying things like digital asset validation activities. It's clarifying, yes, like we said, the wash sale loss rules, created digital

4:05 assets are being treated substantially similar to security and tokenized digital assets too are basically being treated the same way. There's other things too. Um, For example, constructive sales rules are now applying to digital assets. They're considered financial property. I guess a piece of good news is for charitable contributions for people that do want to donate crypto, they're exempt from the same valuation requirements in the same way that publicly traded securities are due to how publicly available the going rates, the different exchange rates are available for crypto.

4:43 Another thing that I wanted to talk about briefly is the treatment of the minimus digital asset network fees. So this one is a little tricky because it claims that no gain or loss is recognized, essentially, if fees are $ 10 or less. And this gets into digital asset transaction costs as well as network fees. I think a lot of this too, the very last section of it, you can go ahead and deep dive onto this for those of you who are interested, is taking a look at the definition section. There's about 15 or so different things that are being defined by this. And I think that might be one of the more consequential aspects of this law is the fact that it's eliminating a lot of ambiguity around things like mind and staking, all these different

5:22 digital asset validation activities. And so with that That alone might actually be the thing aside from the wash sale loss rules now being extended to crypto digital assets. That alone might be probably the biggest thing to keep track of going forward if this legislation does happen to pass.

5:40 All right.

5:41 So let me ask you one thing, because this is probably a question I think that they are going to have to answer. How are they able to go in and apply essentially what is a security framework to a commodity?

5:55 Framework.

5:56 How does that translate if essentially what crypto is mostly set in as a commodity right now, because we don't have any regulatory framework around that as a security, how does that apply?

6:08 Yeah, with that, I mean, like currently you're going to have to look at, it highlights books and records a bunch too. So the extent that you have kind of a crypto tracking software, crypto reconciliation platform, One of the big things is making sure that if this thing does go live, that instead of having the commodity rules apply from a tax perspective, whatever your tax rules engine is, that being the tax laws that the system applies once it has the financial data, you're going to want to make sure that it would be updated to reflect the securities rules, similar to what you see with stocks and other transactions. So that's going to be, I think a lot of it's going to come down to your system

6:44 for books and records and making sure that the rules engine applies. isn't just applying that stuff to the stocks and securities, but extending those rules to crypto.

6:53 Okay. All right.

6:54 Hey, David, are these separate bills or just a package of bills or components that are going to make one bill?

7:02 Yeah, it's, to my understanding, a package of components. And certainly back to what's bad for crypto investors in this, I think one other big one is Kind of the lack of clarity on staking income and when that is defined as income. As people who watch the show might know, there's been efforts to make staking crypto more akin to capital gains, where as you're receiving staking rewards, you're not accruing income at the time that it hits your wallet, but rather, only once you dispose of it, you incur capital gains on the ascension of wealth there. This bill does not define that. You're still going to incur staking income as rewards hit your wallet, which is not great for crypto investors as you could be incurring a tax

7:51 bill without any sort of cash to pay that bill.

7:54 Right, exactly.

7:55 And which kind of forces you to sell the assets, obviously, to be able to, in some cases, handle that. The stablecoin safe harbor, is this a real win for payments? Because it does treat regulated peg stablecoins like cash. And it's in reference to only Genius Act compliant tokens. So is this a win, I guess, for stablecoins?

8:16 Yeah, I think this is a win, especially just because right now software like CoinLedger has to help investors report thousands of stablecoin disposals. Whether those assets fluctuated in value or not, most of the times they don't, still needs to get reported on Form 8949. And so that's just a huge, huge volume annoyance for your everyday crypto investors who is actually using stablecoins as a payment mechanism. Yeah. Yeah.

8:45 I was looking at this right here. This was Coin Center talking about the wash sale rule. I want to revisit this in a second. And if you think about it, doesn't it become unworkable unless you're able to track wallet for wallet? Because if you're buying in this wallet and selling in that wallet or buying in wallet A and selling in wallet A, I mean, it just seems like this would be completely different than like when I'm in a brokerage account where I'm buying and selling in a very defined area. Is that something that you think regulators are taking into consideration?

9:19 Well, whether regulators are taking it into consideration or not, it doesn't really matter. But you're right in that it creates more complexity for the average investor. it's a reason why you need accurate records of where all of your buys, sells, transfers are happening so that you can effectively track not only your cost basis as your assets move from one wallet to another, but the holding period of those assets.

9:46 And so, of course, that's the exact type of system that a platform like CoinLedger was built kind of from the ground up to solve, is to make that tracking extremely seamless for investors. You can do it with an Excel's as well, but you're right that it does make it a harder problem when you have to account for wash sales and your holding period of assets.

10:08 I have one for you guys.

10:09 I don't know if you've heard this one before, but we've seen AI and agentic payment architecture being built around us right now. Agents going out there, finding the best yields, doing activities in wallets. If we turn one loose on a wallet, it goes out and creates another 10 wallets to be able to transact on different chains, et cetera.

10:30 We don't even know those are being done in reality. The key is, is what is it bringing back to this wallet? So is that something that you're concerned about of how that would be tracked because of the potential for agent activity and possibly within the next 12 months?

10:48 You want to take that one, Shane?

10:49 Yeah, I think we'll very much see this. exponentially increase in especially commonality of how people are buy, sell, trade, transferring crypto. And it does create more transactional tracking complexity. For software, though, it doesn't really make it harder for us. We're just doing more with the software, but it's still us tracking public wallet addresses, tracking the underlying transactions on blockchains, which we've been doing for a decade now at CoinLedger.

11:18 Listen, David, this sounds like it's really good for CoinLedger here because you guys are going to win on being able to track all this stuff down.

11:26 I don't like that. I mean, I would rather us be able to have.

11:31 A nice solution that maybe somebody could go out and kind of do their own tax. You're telling me right now, if you don't have something like what you guys are offering, you're basically screwed when it comes to that. If this goes through right here, if this goes through, so.

11:47 Yeah, I don't do I don't love it either. It's a reality. Unfortunately, I used to make the joke, you know, it's like the IRS is our VP of marketing, right? They exactly coin ledger because the more rules they pass, the more complex they make this. Obviously, the higher the demand for tools to track and do everything for you becomes.

12:07 So it's just an unfortunate reality. It happens to be good for our business.

12:12 Hey, Shane, who's better off if this passes? Would it be a trader?

12:17 A long-term holder, someone that maybe is a staker or even a self-custody holder? Who's the one that is better off?

12:26 I would say people that are more actively trading, especially with the stable points and using them for payments, they're definitely going to be better off by the safe harbor. To the extent that you have large crypto traders like institutional ones that maybe don't want to completely defer their tax liability, Being able to make the mark-to-market election and pay that stuff as it's going maybe saves some of the tax headache in the long run just because I've seen very large funds before that make that just so that they're able to time their cash flows out a little bit better. So I would say the more active traders, there's going to be some win from the stablecoin safe harbor, especially if you're just using it for payments. But there's

13:08 going to be some headache, as pointed out, because of the wash sale loss disallowance rules being extended further. to those active trades. If they sell something at a loss, then buy it back within 46 days.

13:19 MAX WIETHE, MD, PhD Okay.

13:21 David, this is the Lummis bill, which is basically going in around tax-exempt Bitcoin spending. It's set at like $ 300, I think, on the threshold, but it has a limitation within this. Should there be any cap at all, do you think? Because this seems like it would cause a problem down the road where it's going to basically be taxing Bitcoin forever.

13:46 I think there's no way to not have some sort of cap. Otherwise, it just becomes a very effective tool to essentially dodge income tax, which just in the United States, all income is taxed. And so if you could spend Bitcoin that has ascended in value, essentially tax-free, very quickly, that becomes a very, very effective loophole to get out of just income taxes in general.

14:13 All right, so I think, well, I won't get into that.

14:16 But all right, so you've got another thing that's happening that is really redesigning systems. So I think there's reports out there saying that it's like 18 months or so to rebuild some of these tax systems to be able to deal with this. You guys I know are on top of it, but there's a lot of other companies out there that are trying to do this, including many of the big accounting firms that are dealing with major companies that are also dealing with this. What does that mean for 26 and 27 tax years? Because if it takes 18 months to rebuild, what the hell?

14:49 I think this is, again, a tale as old as time. It's just going to be not the best experience for your everyday taxpayer. And frankly, they're going to have to rely on private companies. That's been the truth for forever. But hopefully I'm wrong. But that's a big reason why we're building out our own tax firm here at CoinLedger.

15:12 It's just we've seen the demand for people to get help filing their taxes. And we're essentially going to be serving that now moving into that market and really bringing a software-first, AI-native-first approach to that problem.

15:27 Well, kudos to you guys.

15:29 Don't let a tax bill go to waste, for sure. Exactly. Let's go to the last question, and that is what's one move we can make today that might be applicable under these new rules that would be good? You know, if these new rules get through, what can we do.

15:47 Today to change it, you know, to change our outcome here?

15:50 Yeah, one thing that I would say is before this becomes law is actually take a look at any assets in your portfolio. Do you have underwater assets that you could harvest the losses today? And if you still want to be in that position in the long term, buy back. That's one thing you could be doing today. The other thing is, You know, if you are someone who is funding, paying for a lot of your life in stable coins and using that infrastructure, this is a big thing. So you can feel confident in continuing to do that without the complexity of tax reporting those transactions if this were to pass.

16:31 Yeah.

16:32 OK, well, let me ask you this, because some of it and I don't know if this is true, but is some of this possibly deemed retroactive? So would those transactions fall into that safety net? if it is retroactive when it passes. So maybe I do a wash sale or maybe I do a tax harvest and then bam, it's retroactive and I get slammed because of that move.

16:54 Yeah, that's, I know the prior bill did have retroactive components to it. This one, Shane, did you see that in the specifics of this one?

17:02 Going through, I didn't see language that suggested that. I can double check on that, but I didn't see anything that suggested retroactive because the big date I saw was post-tax years, December 31st, 2026. So that means 2027 onward. I can double check that, but that's my understanding is that this is not this bill. The ADAPT Act specifically is not necessarily going to be retroactive. It's going to be proactive for tax years going forward, similar to how the Tax Cut and Jobs Act was for tax years going forward. And the One Big Beautiful Bill Act.

17:31 That's to my understanding.

17:32 OK, just as a because I want to say this for our audience that's watching this right now, just for security purposes, guys, this first is not tax advice.

17:42 Go check with your.

17:43 Your own CPA or your own group that you're working with, because the IRS is great at rug pulling. And it's very possible they could change the rules or we even see Congress out there trying to pass this, change the.

17:55 Rules within it. Best thing is.

17:57 Put some pressure on Congress to try to get this thing not passed. So I don't know if that's possible, but you guys know how to vote with your Congress people to get them going because this is a problem that I think is going to become an issue over the next few years for sure. Guys, we're going to have you back on because I anticipate that we're probably going to have more of these kind of issues coming up before year end and definitely as we go into tax season next year.

18:23 So thanks a lot for coming in today. We appreciate it. Yeah, thanks for having us, Paul.

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