Practical Tax Talk Practical Tax Talk™

Part 1 of our discussion about Cryptocurrency and Taxes started with the question that appeared for the first time on the 2019 tax return, which reads:  
 “At any time during the tax year, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency.”   
A response of “yes” to this question usually means you’ve triggered a taxable event from your virtual currency transactions, which must be reported on your tax return.  
Virtual currency is a digital representation of value. You can access it digitally and spend it at a variety of places.  Virtual currency operates  like “real currency” except it does not have legal tender status in the United States.  For tax purposes, we refer to convertible virtual currencies, which means they can be converted in and out of US Dollars.  Non convertible virtual currencies such as those that are purchased to play games on your phone, computer, or gaming console can only be used within the gaming system and can’t be converted back to US dollars.  These non-convertible virtual currencies are not the subject of our discussion.  
Cryptocurrency is a type of virtual currency.  It uses cryptography to record secure transactions digitally on a distributed ledger such as blockchain.  Bitcoin, Ethereum, Litecoin, and Ripple are popular types of cryptocurrencies.  The use case for crypto has expanded and evolved to an eco-system since Bitcoin first launched in 2009.
Entering the cryptocurrency eco system may feel like jumping into a game of double dutch jump rope.  As a jumper, how do you know when to jump in?  Once you’re in, how do keep jumping without stepping on and stopping the ropes from turning?   Learning about cryptocurrency is one step into the crypto journey.  
Here’s part 2, the remainder of the conversation, with John Wingate, CEO at  BankSocial™ and crypto expert. We discuss the growing popularity of decentralized finance, DeFi, and its impact on banking and financial systems as we know them.  John ends the conversation by providing tips to begin your journey into cryptocurrency.BankSocial™ is the first and only Decentralized Banking and Finance Platform, built 100% from the ground up on the Blockchain, that pays the banks members for holding tokens to fund loans.Website:   https://www.banksocial.ioEmail:  john@banksocial.ioLinkedIn:  https://www.linkedin.com/company/banksocialFB:  https://bit.ly/3ffSL4KTwitter:  https://twitter.com/banksocialioYouTube:  https://youtube.com/BankSocialIG:  https://www.instagram.com/banksocial.io
                                                                **********Thank you for listening.As with any tax issue, contact your tax professional to help you navigate your own unique situation.
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The following question appeared for the first time on the 2019 tax return: “At any time during the tax year, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency.”   Taxpayers must indicate whether or not they engaged in virtual currency transactions by responding yes or no.  The tax return will not be accepted for e-filing or filing, period, if an answer to this question is omitted.
What is virtual currency?  The IRS defines virtual currency as “a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange.”
USD dollar or foreign currency is known as real currency or fiat currency.  In the United States, the US dollar is backed by the US Government and is accepted as legal tender.  As legal tender, the US dollar must be accepted when offered in payment of a debt.  Virtual currency is not real currency or fiat currency in the United States. 
Virtual currency does not have legal tender status.  It is not controlled or backed by the US Government like fiat currency.  Some virtual currencies are convertible, which means they have an equivalent value in real currency or function as a substitute for real currency.  Virtual currency is spendable.  Virtual currency is transacted through certain software applications and digital wallets.  The IRS estimates that there are over 2,000 virtual currencies.  
Cryptocurrency is a type of virtual currency.  Cryptocurrency uses cryptography to record secure transactions digitally on a distributed ledger such as blockchain.  Bitcoin, Litecoin, and Ethereum are popular types of cryptocurrency.The use case for crypto has expanded and evolved to an eco-system since Bitcoin first launched in 2009.   Joining the conversation today is John Wingate, a crypto expert who is freeing the world with a new economic system.  John is CEO at BankSocial™.  BankSocial™ is the first and only Decentralized Banking and Finance Platform, built 100% from the ground up on the Blockchain, that pays the banks members for holding tokens to fund loans. We utilize our proprietary BLOCKSCORE™ social credit scoring system and social consensus lending pool, built with the security of smart contracts, to provide Mortgage, Auto and Micro Lending to the world. BankSocial is by the people, for the people.Website:   https://www.banksocial.ioEmail:  john@banksocial.ioLinkedIn:  https://www.linkedin.com/company/banksocialFB:  https://bit.ly/3ffSL4KTwitter:  https://twitter.com/banksocialioYouTube:  https://youtube.com/BankSocialIG:  https://www.instagram.com/banksocial.io
                                                                **********Thank you for listening.As with any tax issue, contact your tax professional to help you navigate your own unique situation.

In this episode, you’ll learn the warning signs of tax related identity theft, actions to take if you are victim, and steps to take to proactively safeguard your social security number with the IRS by requesting an Identity Protection Pin (IP PIN).

I sold bitcoin. Do I need to report it on my taxes? Is it Taxable?
What’s the difference between a credit and deduction?
How can I legally lower the amount of taxes I pay?
I dropped off a box of clothing to a charity? Can I deduct the cost of the clothes on my taxes?

HI, I’m Lovie Edwards, an Enrolled Agent and Tax Professional. We’re going to answer these questions and more on our brand new show, Practical Tax Talk, a podcast for everyday people like you.

Let’s face it. Life happens before and after Tax Day and financial events oftentimes affect your tax situation. Marriage, sale or purchase of a home, pension or IRA distributions, welcoming a new baby all have tax consequences.

Each episode of Practical Tax Talk will feature a discussion about a tax topic including tips and resources to help you manage your tax situation. We invite people like you, organizations, and a range of tax experts and practitioners to share stories and experiences connected with the topic to help you understand and plan for the financial events that trigger tax consequences.

The first season of Practical Tax Talk begins August 24, 2021. Make sure you subscribe to Practical Tax Talk now on Apple Podcasts or wherever you listen.