Crypto Tax Season 2022 Was A Nightmare For Everyone, Especially Women
Excited to introduce you to our first new FTT Expert: my wife, Stevie Kar! Similar to me, Stevie’s worn a ton of different hats in her career: she was a startup founder and ran a women’s health genetics company, is a very prolific angel investor, and was a tax lawyer at Skadden in a past life and consults for crypto companies on tax and legal issues.
She has a tremendously deep knowledge of fintech and crypto regulation and compliance and I’m hyped I convinced her to share some of her expertise with the FTT community (it was not an easy sell as Stevie hates writing…lol.)
Most of you don’t know this but, cryptocurrency taxation is a topic very near and dear to Ian and me. In fact it’s one of the reasons we ended up together—the very first time we met, Ian proudly proclaimed that he had discovered a crypto tax loophole that was a “gamechanger.” And then I promptly told him that he was very much wrong. Lesson 1: There are no legal crypto tax loopholes that will get you out of paying taxes. Lesson 2: Ladies, always call out when men are wrong…ya gotta keep them on their toes. Ian also has the distinct pleasure of dealing with me and the folks I help with crypto taxes for about 12 weeks out of each year. Needless to say, it’s become a common topic of conversation.
As a tax lawyer, I have been through some doozy tax seasons, but this past year was exceptionally painful for everyone involved. And for me, there was one commonality I saw when folks reached out for help: crypto taxes.
Why? A lot of reasons; one key issue is the fact that many accountants are unskilled in crypto and overwhelmed by the thought of learning a whole new monetary system. That’s just the tip of the iceberg—taxpayers don’t make it easy either. Most crypto taxpayers are woefully unprepared with little-to-no documentation and this year, many have been caught off guard by Tax Day after COVID-era tax extensions. A lot of companies don’t make this easier for customers but that’s a different story. Lastly, the IRS and state governments provide little to not public guidance on crypto (yes, most likely your state will also tax you on your cryptocurrency transactions as well.)
In general, there’s one hard and fast rule you should remember every April – cryptocurrencies are an investable asset, just like fiat.
But besides that, everyone should know the basics by now: first off, be transparent on your tax filings. When the IRS asks if you have any cryptocurrency transactions, it isn’t the time to start litigating what those words mean in your mind. Be honest and include all documentation you have. The IRS views cryptocurrency as property; any crypto trade or any NFT sale where you have made gains is a taxable event.
For those of you who are receiving crypto as income…well spoiler alert…that is going to be income just like any other income. And if you sell that crypto later, settle in for round two of tax complications if you have capital gains or losses.
Even though they are chronically understaffed, underfunded, and running on what might be the most outdated technology known to man, the IRS is serious about cryptocurrency taxation. Many folks may not have noticed, but the same day that President Biden released his executive order on digital currency, the IRS announced another, more serious, round of tax evasion prosecutions related to cryptocurrency.
This isn’t a one-off rarity anymore. If your Twitter profile pic is a Bored Ape and you tell the IRS you had no cryptocurrency transactions…well, brace yourself because you are probably about to be audited. Even worse, if you fail to file crypto taxes you increase the statute of limitations on that audit from three years to forever. Please, for the love of god don’t do this to your tax lawyer. We really take no pleasure in asking you what that 4.99 charge you wrote off in 2008 was, I can promise you that.
Unfortunately, another disconcerting trend stuck out to me this tax season: the folks I’ve spoken to with the most egregious crypto tax issues this year have been women, which is a fundamental crypto education and literacy issue for the ecosystem. For me, it’s raised concerns around taxation equality in the crypto space that need to be addressed.
Historically, men have more traditional means of wealth than women, so they can cover large unexpected expenses, like a tax or hospital bill. Because women don’t, they need to be much better educated on avoiding unnecessary crypto tax bills that can severely hamper their finances.
Women have had serious barriers to entering our financial systems and creating generational wealth; crypto’s given them an opportunity to finally change that. However, by treating crypto as a social opportunity instead of the financial asset that it is, many companies and projects are leaving women unprepared for the tax implications that come with holding these assets. Trust me, there’s nothing empowering about seeing women with IRS tax liens on other tangible assets (like stock equity) or having to pay the IRS back in installments for years to come.
What’s causing this? A lot of it is due to systemic issues in our economy: women are systemically underpaid and have to work harder and longer to save the fiat that needs to be socked away for the inevitable tax bill that comes with holding cryptocurrency. That combined with the peer-pressure among women to buy the latest and greatest NFT or token has created a plethora of tax issues and bills that disproportionately affect younger women.
The past tax season has made one thing abundantly clear to tax professionals like myself: everyone, especially female-focused crypto projects and companies, have a responsibility to educate their users on real-world tax issues. If female-focused crypto projects had someone working with their users in this area, I bet the number of women I had to help this tax season would be cut by half (or likely even more).
I’m not saying it’s easy to find the right experts either—recently, I posed the question “Who is working on tax education for women in crypto?” on Twitter and there were exactly zero qualified accountants, tax professionals, or tax lawyers who said they were.
So, as operators and builders, how can you get started?
To help taxpayers and their tax professionals, I would encourage any company or project working in the space to consider providing simple means of documentation for folks with tax implications. The easier this information is for taxpayers to get, the more likely they are to be compliant with any IRS actions. And the more compliant your users are, the less likely you will be targeted yourself for additional oversight. There also is a lot of opportunity for folks to build tax calculators within their crypto offerings so that people can see real-time tax implications and withhold accordingly or even automatically. The yearly fight to file taxes is already excruciating, so there is no reason to make it harder for everyone trying to grow crypto utilization during these crazy times.
And finally, because I’m a lawyer and we love to have fine print and clauses ‘til kingdom come…none of this is legal advice. And I am most definitely not your lawyer but, if you want to chat about regulatory, compliance, or taxation in the crypto space feel free to email me [email protected] or hit me up on twitter @steviemctweets.