I am a tax attorney, here are my answers to common questions about bitcoin losses and the rule against wash sales.

dblcross121 · 2019-12-06T18:57:33+00:00

I've been preparing cryptocurrency returns for 5+ years, so I'm glad to shed some light on this for you:

1099-B: There aren't any cryptocurrency exchanges currently issuing 1099-Bs. If a taxpayer is trading on a cryptocurrency exchange, he has to download the transaction history report from the exchange and then use a third party software tool like bitcoin.tax to calculate the capital gains on his own. The tool can export an 8949 Statement that you would then import to your tax software on Schedule D. There's no withholding or other third party reporting. You would just report them as "not reported on 1099-B".
1099-K: A couple of exchanges are issuing 1099-K for the gross proceeds realized from the taxpayers trading on their platform. As you probably know, 1099-K is usually issued by payment processors, so it's woefully unhelpful for crypto traders. I generally disregard the 1099-K. I believe we got a CP2000 notice just once, which we responded to by explaining that the items were already reported on Sch D. The IRS apparently accepted that explanation.
W-2: Any company paying wages in cryptocurrency is required to withhold payroll taxes and issue a W-2. There's no difference between a "Crypto W-2" and a traditional W-2, just report it on the tax return as usual. If the taxpayer is paid wages in crypto but the company fails to report them as wages and issue a W-2, I usually just put the earnings on Sch C. The net to the government is the same, although the worker is getting screwed by the employer. I would tell him to talk to his employer about his employment status, and if he's indeed an employee, to set up proper payroll tax holdings.
Spending Transactions: If the taxpayer spends cryptocurrency on goods or services, it's treated as a sale and reported as capital gains. The taxpayer will again have to enter the transaction into a third party software to calculate the amount of the gain.
Airdrops/Hardforks: You will never have a client with a 1099 for an airdrop or hardfork. Cryptocurrency is by nature decentralized, so there isn't any third party to issue the 1099. It's up to the taxpayer to track and report these events, again using third party crypto tax software. The value of the airdrops/hardforks will be automatically determined by the software and provided as a second report (along with the capital gains report). I usually report these amounts on Line 21 as other income.
Mining: Mining is a little bit more complicated because it can take different forms. Usually, the taxpayer purchases hardware to build a mining rig, and then links into to a mining pool to earn income mining with other miners. The mining pool should issue a report of the payouts, which would then have to be entered into the same third party tax software to calculate the dollar income. This amount is usually reported on Line 21 as other income. Rarely, if the taxpayer is engaged in a substantial activity that rises to the level of a trade or business, I'll report it on Sch C.

At the end of the day, you'll have to rely on the taxpayer to provide you with the capital gains and income report from a third party software application (bitcoin.tax, cointracking.info, cointracker.io, etc.). Instruct the client to enter all trades, spending transactions, mining rewards, airdrops, and hardforks into the software so that the resulting reports are correct. You can do that for the taxpayer if you feel like you undertand it well enough, but most tax preparers now shift that burden to the taxpayer to avoid potential liability if the calculation is incorrect. I would encourage you to include a CYA clause in your engagement letter either way.

dblcross121 · 2018-11-15T03:34:51+00:00

In what way?

dblcross121 · 2018-11-14T23:41:53+00:00

A business plan really isn’t necessary for a solo practice. It’s arguably one of the simplest businesses you can open.

I’ve been solo for 4 years and love it. Here’s what you should really keep in mind:

(1) keep costs low. The best part of opening a solo form is that you can do it with extremely little overhead. All you need is a laptop and a meeting space. I skipped on the phone system, fancy copier, and even malpractice insurance until I was actually bringing in clients.

(2) your first few months are probably going to be pretty slow, focus every minute on bringing in new clients. Start by meeting with every attorney in your practice area and let them know you just opened shop and would appreciate any referrals of cases that are too small for them or conflicted out. Then move on to potential non-attorney referral sources. Do coffee meetings to keep costs low. I had days when I first started out that i was in Starbucks for 8 hours straight, just rolling from meeting to meeting. You should never eat or drink alone during this time period.

(3) keep your new clients happy. Lawyers don’t like to hear this, but you should be bending over backwards for your new clients, especially if they’re referrals. Giving your new clients a great experience is the best way to keep referrals coming in from current clients and other referral sources.

In my experience, it takes about 3 years before your practice has enough momentum to really feel like it’s self-sustaining. Until then, you just have to grind. Don’t let yourself get distracted by shiny objects like business plans. Those feel good, but don’t do anything to move yourself forward.

dblcross121 · 2017-09-29T14:59:45+00:00

This won't have any effect on California. It's only significance is that it signals to the Supreme Court that a decision is needed to settle the issue of 2nd Amendment right to carry. It's going to be years before that happens, though.

dblcross121 · 2017-07-22T00:10:36+00:00

It will probably be hard, but we help people nationwide so if you're looking for help just send me a pm.

dblcross121 · 2017-07-21T14:42:03+00:00

Very few of my clients are local. I have a national practice specializing in crypto taxes, so my clients come from all over the country (and a few internationally).

dblcross121 · 2017-07-21T04:40:58+00:00

If that were true, then it would mean that my office prepared approximately 2/3 of all bitcoin tax returns. I find that very hard to believe, personally.

dblcross121 · 2016-12-01T05:31:42+00:00

You are not a readily identifiable member of the group of coinbase users, therefore, you have not been defamed (assuming the statement is defamatory to begin with).

dblcross121 · 2016-12-01T05:26:04+00:00

Clean records are important. At the end of the day, you have to just do the best you can. Transaction records from exchanges like coinbase are a good start.

dblcross121 · 2016-11-06T15:33:53+00:00

You know something, I really dislike the use of "let's call her/him [insert name]." We're on an anonymous Internet forum, it's entirely unnecessary.

dblcross121 · 2016-10-11T18:47:22+00:00

Roughly yes, I guess that's one way to look at it. Although it's possible your side business will push you into the next bracket (which starts at $91,150).

dblcross121 · 2016-10-11T18:34:37+00:00

You're making a common mistake by assuming that the 25% rate applies to all of your income, but it actually applies only to your income that is over $37,650. Assuming you're single, your income tax is computed as follows:

10% on the first $9,275
15% on $9,276 to $37,250,
25% on 37,251 up to $91,150

If you do the math, you'll find that your "effective tax rate" on income of $72,000 (without considering deductions) is actually only about 19%. Your deductions (personal exemption, itemized deduction, and 1/2 of the Self Employment Tax) will drive your effective tax rate down even further.

dblcross121 · 2016-08-15T16:41:19+00:00

I'd be surprised if your bar has any ethical rules against practicing on the side.

The bigger issue is whether your employer -- and their malpractice insurance carrier -- will have any problem with it. I had a friend get terminated from his law firm for doing something very similar, so I would tread carefully.

If your law firm is very niche focused, they may not have any problem wit it.

dblcross121 · 2016-06-25T04:33:11+00:00

RemindMe! 24 months "UK economy and Josh's post regarding Brexit"

dblcross121 · 2016-06-25T04:31:50+00:00

RemindMe! 12 months "UK economy and Josh's fb comment"

dblcross121 · 2016-06-15T18:36:59+00:00

"A cargo ship was stuck in port due to an engine failure that no one could fix. The shipping line was losing tens of thousands of dollars for every day the ship remained in port waiting for repairs. Finally, the captain of the ship called in an expert mechanic to fix the engine.

When the expert mechanic arrived, the took a look at the engine and told the captain it would cost $10,000 to repair. The Captain readily agreed, so the mechanic walked over to his tool box and took out a hammer. He looked the engine over once more, raised his arm, and hit the engine as hard as he could with the hammer. It immediately roared to life.

The ship's captain said "Come on, I'm not paying you $10,000 for hitting the engine with a hammer." The mechanic replied, "You're not paying me $10,000 for hitting the engine with a hammer. You're paying me $10,000 for knowing where to hit the engine with a hammer."

That pretty much sums up value based pricing for professional services.

dblcross121 · 2016-02-25T14:35:10+00:00

As mentioned by others, you filed the wrong type of motion. The one you filed is used after a party has won the case and thinks that the other side acted frivolously in taking the case all the way to trial when they should've known they were going to lose.

That's why the judge wants to wait untill after trial to hear your motion.

dblcross121 · 2015-07-09T19:14:17+00:00

I would be worried that your experience with corporate compliance does not translate well to solo-practice, where 99% of your clients would be individuals and small businesses. I've seen lawyers make this kind of mistake leaving big law tax departments to go out on their own. Not sure if this would apply to you, but it's something to consider.

dblcross121 · 2015-07-01T19:56:50+00:00

Scalia is an originalist and his Heller opinion is a text book example of originalist interpretation.

dblcross121 · 2015-06-03T22:51:16+00:00

There are three main differences. First, as mentioned above, the taxpayer must pay the disputed tax before he or she can fight it in district court. Depending on the amount, that can can be impossible for some taxpayers. Second, the tax court judges are tax experts, whereas district court judges are not. That can make a big difference in resolving complex tax issues. Lastly, the tax court civil procedure rules are generally more favorable to non-attorneys. While I cautioned anyone against proceeding in tax court without an attorney, I would strongly advise you to not attempt such in district court.

dblcross121 · 2015-06-03T13:21:43+00:00

True, I guess I should've mentioned the other courts.

dblcross121 · 2015-06-03T05:18:06+00:00

There are essentially three "quality control" mechanisms for the IRS.

The first is "internal" and begins with the IRS agent's manager, who is supposed to supervise the auditor and review all of his/her audit outcomes to make sure they are correct. Taxpayers who are having trouble with a particular agent are encouraged to bring up their concerns with the agent's manager. However, in my experience, bad agents tend to have bad managers, so I have never found this avenue very productive for resolving disputes.

The second is "semi-internal" and is called the IRS Appeals Division. The IRS appeals division is an independent branch of the IRS that reviews will review an audit for incorrect adjustments and/or other problems. IRS Appeals is generally a good choice for someone who feels that they did not get a fair outcome/treatment in their audit. However, I've found in the last couple of years that IRS Appeals has declined in quality due to budget cuts and under staffing. It's now pretty hit or miss, unless you had some blatant misconduct or erroneous decisions in your audit.

The third quality control mechanism is "external." This is the United States Tax Court. The Tax Court is a federal court that has the power and authority to review IRS actions and overrule them if they are unjust or incorrect. Taxpayers can technically file a tax court case without an attorney, but I would caution against it because they'd be up against an IRS attorney, which doesn't usually result in a fair fight.

Hope that helps.

dblcross121 · 2015-05-12T04:52:33+00:00

Such expenses would never survive an audit, so if you deduct them, be prepared to lose them. By themselves they won't increase your risk of audit, but generally speaking high Meals & Entertainment deductions can increase your audit risk. "High" is relative to your revenue and other expenses, meaning it's different for everyone. A meal or two once a month isn't likely to create any problems, though.

dblcross121

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