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Deep Dive with Zach McClure from Token Tax

One of @tokentax founders, @ZacharyMcClure, the head of accounting will be LIVE Now!

TokenTax posted 10 months ago

with or if you'd like to join the discussion.
Dennis Stücken
Will you support other countries than the US in future?
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Alex Miles
How should I think about reporting my taxes with forks?
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Zac McClure
@milesalex Hey Alex-
Short answer: Most people would be fine not reporting income at the time of the fork, and just reporting capital gains once they eventually sell the forked asset
Long answer: There really is no great way to treat forks for tax purposes. They aren't exactly like dividends because 1) they're involuntary, and 2) they usually don't have a readily available market value at the moment of forking 3) many, if not post, holders of the original asset won't even have easy access to the new asset after the fork (look at Litecoin Cash this week, as an example)
Every holder of Litecoin supposedly gets 10 shares of Litecoin Cash that was trading at $7 on some exchanges after the fork. That's $70 of (either dividend, or ordinary) income you'd have for doing nothing, after a fork. Most Litecoin holders didn't even know about the fork! Anyone who holds their Litecoin at coinbase (which has over 13m users, last I heard) will probably never get the Litecoin cash, which is different than what happened with bitcoin and bitcoin cash. Also there have been dozens of forks, and it's extremely difficult to track them, especially when many people never even get access to their forked coins (PSA: look into how to get access to your Bitcoin gold and other forked coins - it's just free money!)

Thus, from my perspective, forks should be treated as a new asset with a cost basis of $0, and no income realized on the date of conversion. I think this is pretty clearly the right choice, and the simplest option, for filing taxes for most people.
The case of Bitcoin Cash is the most well-known fork (and Bitcoin Cash actually did have a pretty substantial market value right after the fork) and most people did actually get their bitcoin cash, even those who did nothing and just left there money in Coinbase for example. So if you wanted to be conservative you would say: The value of Bitcoin Cash was ~$266 after the fork so I have ordinary income equal to this amount on the day of the fork, and when you eventually sell the Bitcoin Cash you'd recognize a gain or a loss on the difference between $266 and what you sell it for. Again, this sucks for the taxpayer because they owe taxes for something they didn't necessarily even want to happen, and many Bitcoin holders didn't even know it happened.
Lastly, the IRS has issued no guidance on this. So anyone's best guess could be as good as anyone else's. I've heard the most well known crypto accountants on podcasts and in conversations give completely different answers to this question and that's ok, as long as you have good reasoning and logic to explain your decision to the IRS in case they decide to probe deeper and ask for more information or audit you.
If you're worried about that - please check our TokenTax - we even offer an 100% guaranteed - unlimited audit assistance program if the IRS decided to audit you for anything related to your crypto tax filings! Thanks for having me for this Q&A! Please check out tokentax.us if you need help filing your crypto taxes, or just have questions you'd like answered
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ɔɔ.cc
How do the new alternatives to FIFO work for minimizing capital gains, and are they applicable for 2017 tax filings or just 2018 onward?
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Ben Tossell
How did you get into crypto?
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Zac McClure
@bentossell Hey Ben, I first got into Crypto a few years ago when an informal investment group I joined in college at USC had a few members start posting about Bitcoin and blockchain and a new investment class- so I started to look into it, and learned how to buy Bitcoin and what's uses were. I didn't start investing in other coins or getting more deeply involved until 2017
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Ben Tossell
What are some of the biggest challenges you are seeing in this space?
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Zac McClure
@bentossell Filing taxes related to crypto investments for one- which is why we started TokenTax. Also just figuring out what is allowed and what isn't from an investment perspective, let alone the tax implications. There has been so little guidance from the authorities and regulators in the US that even the most well intentioned crypto investors are having a hard time knowing what is allowed and what isn't.
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Zac McClure
@bentossell 2) And this makes me worry that regulators will take an antagonistic view of cryptocurrency instead of embracing it (in the U.S. in particular), and it will drive a lot of the best innovators- who have the mobility to move wherever they want- out of the country entirely potentially.
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Ben Tossell
What’s your background and what are you working on?
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Zac McClure
@bentossell My background is a bit eclectic. I grew up in Colorado. Went to college at USC where I studied accounting and finance and dabbled in entrepreneurship starting a private swimming lesson company called Walk on Water Swim Prep. I decided I wanted to have a career that was an extension of what I had studied so I joined JPMorgan and spent a couple years in M&A investment banking right at the start of the great financial crisis. A silver lining of the timing was that it made the learning experience much more valuable. While I was at JPM I joined Operation Hope and taught financial literacy to high school students, and I loved seeing that the material I was teaching was having such a transformational interview on those student’s lives, and their family’s lives. I decided I wanted to continue having that impact so I did a complete career 180 and joined Teach for America and taught math in Brooklyn for a few years. I was able to leverage my summers off by working with organizations in India and Africa in finance and strategic advisory. Afterward I got my MBA at Wharton, spent a couple of years working in strategy for Bain and Elsevier and started to get deeper and more fascinated with the cryptocurrency space. I decided I wanted to get back into entrepreneurship, and as a cryptoinvestor and combined with my background in finance, investing and tech I saw a huge market opportunity for TokenTax.

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Ben Tossell
How and why did you launch this?
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Zac McClure
@bentossell As I mentioned above - having a passion in personal finance, a background in taxation and spending a lot of time investing in stocks, cryptocurrencies and other assets I realized that the taxation implications of crypto investing for 2017 were going to be fascinating.
The combination of:
1) an unprecedented run up in asset value
2) the fact that a lot of people had only invested for less than a year so most active traders had large short term gains - which are taxed at a much higher rate
3) Huge wealth creation by investors who are less savvy about taxes than traditional stock market investors, for example
4) Extreme confusion about what was allowed from a tax perspective because there was not even a single source of truth from the IRS, like we have for general taxation

For tax nerds, like me, it meant that understanding how to use specific shares accounting asd opposed to FIFO - which is the general standard- would have the chance to create literally billions of dollars in tax savings in 2017 for people. And tens or even hundreds of thousands of dollars for ordinary people who had never made that much in their lives and didn't have the tax expertise to optimize

It was just like a huge puzzle with literally billions of dollars in capital gains taxes alone at stake - and I was trying to figure out the best way to help the most people with this problem in a profitable way.

I started working on more informal tax and financial strategy consulting and met my co-founder Alex Miles who had been building the TokenTax website - and we immediately hit it off and literally within a few hours had decided to launch this company together. His original product automated the data collection and had a beautiful user experience that was lacking from my efforts, and I had the tax expertise to build the perfect tax minimizing / specific shares algorithm.
It's been an amazing partnership so far and we're still in the early days!
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Ben Tossell
How did you build an early community?
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Zac McClure
@bentossell 1) We both had a similar network of crypto enthusiasts who get together quite often, usually while working other non-crypto related jobs, but slowly over the past year people have created companies and found awesome opportunities in this space
2) We've built an online content media presence where we do out reach and just teach people about Crypto taxes - There is still so much information. More than half of the battle of acquiring a crypto investor as a customer- is helping them understand that they even owe taxes and how they can even begin to calculate them.
- And we share tips and best practices that make people money, so the network has just grown out of self-interest and referrals
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Ben Tossell
What was it like building for the Product Hunt hackathon?
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Zac McClure
@bentossell The work to prepare to launch on Product Hunt before too much of tax season has been the most intense work of my career- but also insanely fulfilling - and I'm sure that feeling will only grow when I slow down in a couple of months and look back on what we've been building, and the amount of people we've helped, and the amount of money we've saved people by just helping them understand what is possible from an IRS accounting methods perspective (FIFO, LIFO, specific shares etc)
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Ben Tossell
Have you found anything particularly helpful or advantageous?
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Ben Tossell
What’s your advice for people who are just starting out in crypto?
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Zac McClure
@bentossell if you're anything like me, you'll feel like you don't understand anything for a long time while you learn about the space. Just read as much as you can, and go to as many meetups and possible and just listen to the people who know more than you. And when a topic comes up (crypto related or not) where you have a chance to help others and share knowledge- do your part and share it - and people will be happy to continue teaching and sharing knowledge with you. It's an extremely intimidating space and community; but an absolutely brilliant community that is actually very welcoming once you get over your own sense of imposter syndrome and doubt about whether you'll ever be knowledgeable enough to add value. Don't worry - just keep learning more every day- that's all you can do
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Mike Coffman
@bentossell @ZacharyMcClure And, once you start buying and selling, keep good records that are up to date. Much easier than reverse-engineering it through Etherscan! The tax and tracking tools that are starting to come out should make things a lot better, especially compared to a multi-tab, cross-linked spreadsheet.
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Zac McClure
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