Crypto Margin Trading, Strategies and Taxation

Hello everyone.
This is Sal from BitcoinTaxes.
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’s stead, a CPA and financial accountant
from Kugelman 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 Sal.
Thanks for having me.
Of course.
Can you tell us a little bit about yourself?
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 raw data and format it
in such a way that it is useful to serve as
So that’s my background with accounting.
And then there’s a few lawyers who have found
that this is extremely useful for cryptocurrency
And in particular the guy I work with all
the time, Alex Kugelman, he does cryptocurrency
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 a 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 the blockchain that’s the really crucial
aspect of these assets.
And every, every business nowadays is, is
jumping on the blockchain bandwagon and trying
to find some use for it, which is a great
And, and like you said, the blockchain has
plenty of utilization.
We can imagine a supply chain that is certified
organic where the blockchain will 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 good.
There’s a lot less worry about things, you
know, was being lied to about stuff like that.
I think 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?
So margin trading is the process whereby you
take a speculative position using a loan.
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.
Are margin trading loans kind of beholden
to the same process as regular loans.
Well, they, they have different reporting
requirements and, they’re, 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, there’s going to be
an interest expense just like in any law.
But for practical purposes, for the case of
your listeners Sal, they’re going to need
to set up a margin account with their particular
cryptocurrency exchange.
And you talked a little bit about a long position.
Can you describe what a long position is in
more detail?
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 by let’s say one bitcoin that concentrating
at 1000 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 bitcoin is trading at $2,000 sell the
Bitcoin, now you have $2,000 in cash and you
owe $1,000 plus interest payback your thousand
dollars, pay the interest.
Let’s say it’s 100 bucks and keep the change.
That’s a long position on margin in absolute
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.
So the tax implications start getting interesting.
You have the interest which is denoted in
this business as the margin fee, but its interest
on a loan that is deductible under most circumstances.
And so you have to keep track of how much
interest you pay because you 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 $1,000 because your position closed and
you’re in the money.
So you have $1,000 gain and you have a $100
The gain is a futures position, earnings and
the deduction is margin fee, which is interesting.
So in this example you’re saying that the,
you would take the $100 interest off of the
$1,000 gain and overall you would have a $900
Am I understanding that correctly?
Your, your nets a $900 but the net is two
pieces of the puzzle, which is the raw game.
So thousand bones and the interest, which
is 100 pounds.
How about short positions?
So short positions are much more fun and much
more dangerous.
So let’s imagine that you want to short bitcoin
and Bitcoin is trading at 1000 bucks.
You borrow one Bitcoin, let’s say you borrow
it from somebody that you, that owns them.
So now you’re holding one bitcoin and you
oh one bitcoin, sell the Bitcoin for 1000
bucks and then hold the cash and then wait
three months.
At the end of three months you are holding
$1,000 cash and you oh one bitcoin plus interest
denominated in bitcoin.
So let’s say that bitcoin is now trading for
500 bucks.
You take your thousand dollars cash by, let’s
say 1.1 bitcoin or five 50 payback.
The one bitcoin that you, oh payback 0.1 bitcoin
in interest and keep 440 US dollars.
That’s the short position where you’ve borrowed
what you think will go down, sold it $4 wait
and then buy it back cheaper and payback 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 by you call someone up
and you put someone down.
That’s a great way to remember it.
So how overall, how does margin trading overall
So the, the way it works, you don’t take a
loan from a bank either.
You don’t go out and borrow one bitcoin from
your buddy.
The way it works is that a Brokerage House
has a ledger and that’s how it goes these
You don’t actually transfer the asset.
So let’s imagine that you call up your brokers
and you say, I want to go long on bitcoin
and I want to do it on margin.
They’ll say, okay, good.
We have it recorded, we have you recorded
as long bitcoin for 1000 bucks.
See, see you later.
And then they just make a note in their ledger,
you know, John’s in for thousand bone bones
long bitcoin as of this date.
Three months later they just check the price
of bitcoin and then tell me, oh you won, here’s
$900 that’s $1,000 gain with a $100 interest
Or they say, hey, you lost, you owe us 300
bucks a and the 300 bucks would be, you know,
pure interest on the loan 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 a do our accounting and be a report
it correctly on a tax return.
Yes, absolutely.
And I know that you said that you do understand
the margin trading ledgers, 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
Sure, sure.
The one that I that I find the easiest is
the Kraken 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 there, frequently
asked questions and you could see how they’re
But the Kraken Ledger is absolutely easy to
And if, if you understand how it works and
Kraken, you can understand how it works on
the others.
So when you export a Kraken Ledger, it’s going
have every transaction that you did.
Now the trades are going to come up in two
pieces and the category is going to be called
, so let’s say you bought ether for 1000 bucks,
it’ll say trade ether one.
And then the next line down I’ll say trade
US dollars minus a thousand.
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 0.2 bitcoin in your, in
your exchange and you want to let it ride
and bed again, you’re going to be charged
or rollover fee and they’re all over.
The fee is basically the VIG, and so the rollover
fee is going to be denominated in usually
crypto currency and there’s just going to
be a giant ledger full of them.
Any time you see rollover on a margin trading,
or at least in this case, Kraken Ledger, CSV
file, the rollover is a fee
precisely right?
If you’re using Bitcoin.Tax 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
crypto currency 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 and 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 on tax will tell you the US dollar
value of that transaction.
So if you have a ledger full of rollover feeds,
you would load these as sales of cryptocurrency
into your Bitcoin.Tax account.
And then separately you would load the quantity
of cryptocurrencies and the dates of the transaction
into the expenses portion of Bitcoin.Tax and
Bitcoin.Tax would tell you the dollar value
of your role over fees and you would deduct
that on your tax return.
To clarify it, you would recommend that users
would then remove the items from the spending
tab because if enter them into the trading
tab sales, it’s 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 will be recorded as to sales of the same
a rollover.
And this is where the nuance comes in where,
you know, the, there’s a reason why I make
a living doing accounting with cryptocurrency.
It’s complicated.
But for practical purposes, the critical thing
to understand is when you pay a fee and 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 0.1 bitcoin as a rollover feet.
And then also what is the dollar value of
that fee so that you can deduct it.
Like you said, cryptocurrency trading, doing
the taxes for crypto trading is certainly
And then adding in margin trading makes it
even more complex.
So I’m glad people like you exist in services
like Bitcoin, that tax exists.
And we’re happy to be here.
And then, so you mentioned that there were
two main things you’d see.
You’d see rollovers on the Kraken ledger and
then what was the other thing that you would
The other thing that you’ll see is just simply
called margin.
And the category, margin is going to 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 Kraken 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, that are two
Additionally, next to it we’ll 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, it’s interest.
You borrowed to make the bet you got to pay
your interest.
So if you look at a Kraken Ledger and you
see category margin to bitcoin fee, 0.1 bitcoin,
what has happened is you won a speculative
Your winning is 2 Bitcoin, and your margin
fee is 0.1 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 going to 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 earned them.
So if bitcoin is trading at 1000 bucks a pop
and you win two bitcoin on margin, your basis
is $1,000 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.Tax ledger, it would
be carried as, yeah, these two bitcoin were
bought for x dollars on this date and the
cost 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 and Bitcoin.Tax and plugin to bitcoin
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.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 A) your
inventory ledger of cryptocurrencies does
not double count anything.
And B) that you are cognizant of all of the
reportable 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 earning.
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, two Bitcoin
from your trade and then there’s a fee of
the 0.1 bitcoin.
Now that 2 bitcoin that it shows on the ledger,
is that overall what you had and so you actually
have 2.1 bitcoin and the fee or is the interest
of 0.1 bitcoin already taken out of that figure
and in reality did you gain 1.9 bitcoin?
It is listed gross.
So you won two bitcoin and then separately
you had to pay 0.1 bitcoin in interest.
If you Kraken ledger says margin: 2 bitcoin,
0.1 bitcoin fee, you have a taxable earnings
of two bitcoins and a deductible fee of 0.1
It is listed gross.
Got It.
Thank you for that clarification.
And then you know, obviously the, the reverse
is true here.
If it says margin minus two bitcoin, fee 0.1
bitcoin, you lost your futures position, you
had to, dispose of two bitcoin and you had
to pay interest of 0.1 bitcoin and in this
case you have to book that as a sale of bitcoin
because the bitcoin that you lost while you
held it, it either gained or lost in street
And then on the date of loss, it is a taxable
event just in virtue of the fact that you
are disposing of cryptocurrency.
The really particular nuance of margin trading
with cryptocurrency is that independent of
the speculative positions themselves, the
crypto currency itself is treated as a speculative
position as well.
And so you have two bets running at all times.
Complex stuff!
So you clearly know a lot about margin trading.
So can you, for anybody that’s listening,
can you maybe talk about some margin trading
strategy that might benefit people?
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 a lot of people’s
strategy when they play blackjack is they
know that the house has a little bit rigged.
You know, it’s, it’s roughly a 5% 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 going to 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 and have fun.
Put a thousand bucks out there, play small,
enjoy yourself.
But if you’re going to 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 going to lose your
But there’s another approach.
And the other approach is to take it like
a poker player.
Now a poker player needs for 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 going to work, it doesn’t
You’re going to lose money.
That’s how that’s going to go.
But let’s just presume that you have a strategy
and your strategy’s 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 ERC 20 wallet and it’s
just blowing up 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 of weeks to really posted
straight to the blockchain.
There’s a limited number of them.
They’re going to 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 bed 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, 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, you’re in the pot.
Things are going good.
When the turn comes up at 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 re Orient your strategy.
But don’t go reorienting your strategy mid
That’s like trying to reorient your golf swing
in the middle of the Swain, not the right
time for that.
So basically don’t, don’t rely on emotion
at that point.
Stick to your strategy.
And there’s a, there’s an old phrase, I was
in the marines for four years.
There’s an old phrase we all we used to like
to say it’s the French phrase sang-froid.
And what it means is cold blood.
When you go into this game, if you don’t have
cold blood, don’t trade on margin.
You need to keep your head call.
So that’s the, the discipline aspect.
The third aspect that you need is patience.
If you don’t have any patients, you should
not be trading on margin.
And that’s because if you don’t have patients,
you’re going to go doubling down on your bet
while it’s still alive.
Not a good idea, right?
You need to have a long-term strategy approach,
approach it with discipline and also let the
strategy work in real time and be patient
about it.
The last thing that you need is liquidity,
which is to say you need cash to backup your
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 patients, 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 going
to happen.
And if you are a good poker play and 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 bitcoin’s going to go
down relative to ether.
As you go sitting on that trade, you’re going
to 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
If you don’t have the currency to post as
collateral, you will lose your bet even if
it was the right bet 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 ride them out.
That is an invaluable strategy.
And to go off the, 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 going to hurt you to spend $1,000
gambling, if it’s going to put you in shambles
financially, you don’t want to gamble that
And I’m assuming the same applies to margin
You know, and if you earn your living margin
trading, let’s say, and the, there’s plenty
of people that can do that.
It’s, it’s a perfectly respectable living.
If you earn your living with it, you need
to hold in 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 now 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
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 there 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 there the phrase
too big to fail was floated even then.
So if you are trading on margin, just bear
in mind, if you’re 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 gotta, you gotta eat.
So if this is what you do for a living, you
can’t bet the entire farm on one bed.
That’s just not going to work.
You don’t want to be the, homeless guy that’s
well versed in margin trading.
I mean, how many times have we seen a wall
street trader just wearing a barrel and just
wandering around the streets?
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 to really excellent
strategies, 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 cryptocurrencies.
So what a lot of people do with high volume
trading is they’ll the gun to their exchange,
they’ll have a, a solid, a cache of cryptocurrency
and then they’ll set parameters for automatic
The they’ll set limits.
So let’s say if ether is, you know, within
five x of a Bitcoin, I want to trade, give
up my bitcoin and buy ether.
And so what they’ll do is they’ll set price
limits for automatic trading.
And this’ll come up in the ledgers and it’ll
sometimes say limit by or limit cell.
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 10 bitcoin or buying, you know,
a 20 ripple tokens.
The only difference is the number of transactions
and the overall volume of transactions.
Now, in my work, with Alex Kugelman, I think
we’ve seen maybe 500,000 transactions in a
That was 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 going to have to render
their CSV exports into the Bitcoin.Tax format
or upload it raw as it’s exported.
Like if you have Poloniex and you have a hundred
thousand trades, you can just upload your
ledger into Bitcoin.Tax, but they’ll have
to pay the fee.
Because, you know, you have a specific number
of trades that you’re allowed.
If somebody has a million trades, which we
do allow for, you’re going to have to pay
a little bit more money than the guy that
has 40 trades.
And in a purely taxable transactions respect
if you trade a million times or you trade
once, it’s the same principles in play in-so-far
as you’re an ordinary human and then that’s
the tax return.
And I think 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 using, and of
course it’s up to them, but they should do
something like Bitcoin.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 of the data is right.
And you know you can see this with, the Coinbase
summons went out.
If, if people had just a small amount of transactions,
they weren’t subject to that Sun.
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?
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.
Or Hire Alex, you know, and he’ll represent
you and we’ll just go through and do all the
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 acquired these coins, if
you have no records, then you know, the burden
of proof is on you.
And you’re kind of screwed in that situation.
So this is an excellent, excellent point.
And I’ll, I’ll tell you the hardest part of
my job as a cryptocurrency accountant is dealing
with missing records.
And, Alex and I have seen this a bunch where
there’s times where there’s just no records,
but we know something must’ve happened.
And working through that a 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 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 a better
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 align up the end.
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.
It’s, 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?
Not to mention a high accounting bill, I’ll
take the fees, but I really don’t want that.
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 then regular traders?
There is something that’s called a mark to
market election, which day traders can sometimes
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 take its dollar value, take the inventory
at the end of the year and take its dollar
value, the differences, your taxable earnings
or lost the, the regulations governing this
our 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.
But it also is on 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.
The IRS hones its regulations by conducting
And so if you are on the front edge of a,
an accounting position to the IRS, the IRS
is going to figure out what it wants by auditing
you and taking you to court.
And then the same thing, you’ve had guests
talk about like kind exchange four 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.
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
It’s usually best to follow the most conservative
approach, even if that means less money for
you, it means less risk for you.
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 us.
And, what is the best way for somebody to
reach you so that they can get some of your
expertise, to themselves?
Well I work for Alex Kugelman.
In the case that you want to talk to me, you’ve
got to call or email Alex at [email protected]
and I think he’s on Bitcoin.Tax if I’m not
I’m sure you could put them up on the link.
We’ll have all that.
We’ll have that put up in the write-up for
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
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.
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.

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