Citadel Dispatch

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Satoshi Pacioli is a leading bitcoin focused accounting firm based at Bitcoin Park in Nashville. They discuss the recent IRS rule changes and their best interpretation of how to proceed going forward.

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(00:00:38) Introduction - No More Intro Clips

(00:02:06) Bitcoin Tax Discussion with Experts

(00:03:06) Understanding the Safe Harbor Provision

(00:09:53) Practical Scenarios for Bitcoin Holders

(00:28:00) IRS Reporting and Future Changes

(00:36:07) Conspiracy Theories and Custodial Pressure

(00:43:08) IRS Broker Rule and Legal Challenges

(00:52:03) Choosing HIFO and Tax Strategies

(01:00:05) IRS Compliance and Reporting Details

(01:07:01) Final Thoughts and Wrap-Up

[00:00:38] ODELL:

Happy Bitcoin Monday, freaks.   It's your host, Odell, here for another Citadel dispatch, the interactive   live show focused on actionable Bitcoin and Freedom Tech discussion.   You may have noticed that I skipped the mainstream media clip this week.   My wife and I recently had our first child.   And when I'm doing,   fatherly duties, I've started listening to podcasts at length again,   and they are just   destroyed by advertising.   It's just and I got my hands full. I'm, like, holding the kid. I'm, like, bathing him, doing all these different shit, and I can't skip the ads. So I'm stuck in the ads.   I'm pretty sure dispatch is one of the most listened to non advertisement funded shows.  

So a way for me to flex on all the other podcasts   is to just   do pure content.   Just you listen and you just all you do is you get good actionable conversation.   So I'm trying this out as a flex.   Let me know what you think. If you want if you want the clips come back, you like them as a time capsule. I always like them as a time capsule too. That's why they exist in the first place. I'll bring the clips back. You can let me know by using podcasting 2 point o apps, like fountain podcasts in your favorite app store. Just leave a comment there. Throw some stats our way,   and and we can take it from there. But I was just thinking, let's just keep it let's just keep it as clean as possible.  

But, anyway, we have a great conversation lined up. I have   these great 2,   tax professionals   that are based here at Bitcoin Park in Nashville. They run a business called Satoshi Petioli,   which is probably the best Bitcoin focused tax firm in the world. A lot of your favorite companies use it. A lot of a lot of Bitcoiners are using them on an individual basis.   And so we have Joe here and Seth here. How's it going, guys? Good. Thanks for having us. Thank you for having us on.   So this is one of my least favorite topics.   But you guys said that,   it was important   for us to discuss this before the end of the year.  

Seth actually told me   the day before Christmas, he was like, Matt, this is an important topic. It'd be great if we could rip,   before the end of the year. He gave me about 7 days 7 days to to make this rip happen. So here we are live from Bitcoin Park to make it happen.   So where should we get started?  

[00:03:06] Joe:

Yeah. I mean, I think probably the most pressing thing that we've been getting a lot of questions from people is there's a lot of information around this new safe harbor provision   around the new IRS guidelines starting on January 1st.   And so   I think we're gonna try to hopefully, like, ease people's fears a little bit on it, provide some good information on what you do and don't need to do before end of the year.   And then, obviously, like, as you have questions in the chat, feel free to drop those for areas that you wanna make sure that we cover. Yeah.   Josep, do you wanna drive into   the safe harbor in general, what it is,   and kinda how   individuals who are holding Bitcoin want to think about it. Yeah. So.  



[00:03:53] Seth:

Basically what the safe Harbor is is it's the IRS.   Allowing or giving the taxpayers a little bit of flexibility   to clean up   prior your cost basis that hasn't been,   like, you haven't sold Bitcoin yet and associated that cost basis with the sale. So you have these unused cost basis. Maybe it's FIFO, maybe it's LIFO, maybe it's FIFO, maybe you don't even know what your basis is and you still need to find it.  

[00:04:17] ODELL:

Wait.   What's FIFO? What's LIFO? What's HIFO?  

[00:04:22] Seth:

So FIFO is   first in, first out. LIFO is last in, first out. And then HIFO,   it's kind of a newer term, I would say.   I see it a lot more than the Bitcoin side of things, but it's the highest in first out. So maybe you bought 1 Bitcoin in a $1,000 and then you bought another at a 100 k. You might want to sell the 100 ks first to pay less taxes than that 1,000 ks.   So we can still do that with these prior purchases before January 1st coming up here.   But really the main change going forward is   a lot more reporting requirements from the IRS starting January 1st.   And any Bitcoin that you purchase   starting January 1st on   will be tracked using   FIFO. It's 1st in, 1st out.  



[00:05:09] Joe:

Yeah. So that's probably the first major change to try to highlight for people starting on January 1st.   Previously, you had this optionality of using, hey, I bought Bitcoin at different prices. I'm gonna say I sold   x Bitcoin and have a smaller gain versus Bitcoin I bought in 2014,   for example. And you could just dynamically switch. Right. And so now in 2025,   they're saying that IRS is saying essentially,   this was always the rule that we wanted people to use, but we didn't we weren't,   like Clear about it. Clear about it.   And so starting in 2025,   everyone's gonna use this going forward, at least. But with the safe harbor provision,   assuming that you, you know, you document it, you're able to take previous Bitcoin that you've acquired   prior to 12/31   and use these other options as well still.  



[00:06:01] Seth:

Yeah. And I've seen a lot of people kind of freaking out, and I've actually seen a lot of misinformation   regarding this stuff online. So,   contrary to popular belief, you are not actually formally filing   with the IRS right now. You're basically declaring, hey, I'm going to pick specific ID or I'm going to pick global allocation method. And that's that.   We're not sending screenshots. We're not sending the IRS   your entire cost history that you've ever bought. Not sending the IRS anything right now. No. You're not sending them anything right now. Where this will come in hand later on would be like 2 or 3 years down the line. Let's say you get audited.   The safe harbor vision,   the IRS is basically saying, you know, if if you allocate your basis   how you want to,   and then you use that for these sales,   by declaring that in the next few days or we have a little bit of time for one method,   you don't run risk of recalculation during audit. So in theory, this document   should really only come up during an audit.  



[00:07:03] Joe:

Yeah. And that'll be a long way down the road. So we wouldn't say, like, hey. Don't worry about it. Like, you know, you don't need to do anything, but it is important to understand that, like,   the reality is for 99% of people, no one will ever see this document besides yourself just from, like, an understanding from a privacy perspective.   I would say So you're saying that you think the percent of Bitcoiners that will be audited in the future is less than 0.1% to Bitcoiners?   I'd be more comfortable if we said less than 1% of Bitcoiners.   But it's gonna be a small number. There's a there's gonna be more and more Bitcoiners. So so that number's gonna have to come down. Okay. Fair enough.  

And I think,   I think just from a,   the flip side of that though is the information or, you know, whatever doc whatever you're documenting with the safe harbor plan as far as   whether it's individual addresses,   screenshots, whatever it is, be aware that that's what they would be requesting in the audit.  

[00:08:00] ODELL:

And so to be able to back up what you're Exactly.  

[00:08:04] Joe:

So just having that as understanding of, like, this is how the document's gonna be end up be being used for that relatively small percentage of people that it affects. And that's not different. Like, just because this is a Bitcoin, it doesn't make it any different. Like, tax returns are sent to the IRS,  

[00:08:18] ODELL:

and they're assuming you're telling the truth. Right. And only then in an audit would it come back up. Like, during an audit, you're you're guilty till proven innocent. You basically have to back up everything that you've said to them in the past with actual evidence.  

[00:08:31] Seth:

So the IRS might say, like, hey, these are a lot   of meals or business expenses here. Let's dive into that. But even then, you might run the scenario where you can have you can just do a sample size. Like, you might not actually have every single line item.   But, yeah, anything that you are ultimately saying to the IRS,   you wanna be sure that it is correct because they'll they'll dice you up.  

[00:08:53] ODELL:

Okay. So freaks,   obviously, we have,   the rider die freaks in the nostril chat.   We're also paying attention to the YouTube chat. I can see the YouTube chat here, but the rider dies in the nostril chat. You can get to that chat by going,   to zap.stream/odellorsodeldispatch.com/stream.   All the important links are atodeldispatch.com.   So if you guys have questions as we're having this conversation, feel free to put the questions in.   No question is too dumb.   I   know this is not people's favorite topic. It's probably, like,   pretty close to the bottom in terms of my favorite topics. If I'm not my favorite topic.  

I, that's why that's why we hire people like you guys.   Okay. So can we go through   can we go through, like, a practical scenario? Let's go through a practical scenario. Probably the scenario that applies   to,   99%   of the people that listen to dispatch.   So   they have let's say they have a custodial wallet on strike, so they have some Bitcoin on strike.   Not your keys, not your coins. I don't know why you have Bitcoin there. But let's just say you have Bitcoin on strike.   They have some Bitcoin on strike. They have some Bitcoin   in cold storage.  

So, like, on their hardware wallet or hardware wallets with Multisig and Sparrow. So they have a cold storage wallet. And then let's say they have a hot wallet on their phone. Right? So they have 3 wallets.   How do they what's what what is the best way for them to proceed here based on your interpretation of this rule?  

[00:10:31] Joe:

Yeah. I mean, I think there's there's been some some different guidance around it. I mean, we might even have different opinions on this. It it very much is   a nuance tax, but also just practical conversation of, like, if you want to make it simple as for your tax size things, you could just say   move all this into one wallet, whether that's  

[00:10:52] ODELL:

Yeah. No. Don't do that. Okay.   That that would be the simplest on the the tax side. But There I think there's, like, a rightfully Yeah. Skeptical conspiracy theory that the goal is to scare people into consolidating because that's horrible for your privacy. Right. And can we just toss out that   can we just out that one?  

[00:11:11] Joe:

And so, like, honestly, like, 3 walls is not that complex. Right? And so it it's Let's try to simplify it a little bit for you. And so,   what's important to know there is essentially that   those 3 wallets are gonna have their own cost basis attached to them. Right? And so   potentially being strategic about,   hey. If I have Bitcoin on Stripe,   it's probably because I am going to be selling or using it in the short term. Right? Or Yeah. As you said, why is it there? Yeah. And so maybe that You're getting ready to sell for your mortgage or whatever. Yeah. And so   maybe that is my higher cost basis Bitcoin that I have held there. Where you just bought it. Right? Yeah. Or yeah. Or you you have it there and you plan on leaving it there or,   whatever your situation is there, though. Like,   the exchange Bitcoin is probably the most short term Bitcoin. Right? Right.  

Versus   my cold storage   is probably Bitcoin that I don't intend to sell for 1, 2, 5, 10 years. Right? Maybe you've been stacking it for 1, 2, 5, 10 years. And so that is probably Bitcoin that you have as your lower cost basis and that like, yeah, you're gonna pay some tax on it eventually, but that is years down the line. Right? And then your hot wall is maybe somewhere in between of, like, maybe I'm using that to, again, purchase things on a regular basis.   But, like, trying to be strategic about which  

[00:12:36] ODELL:

Bitcoin you're holding in each of those wallets at least. Okay. So then but then what are you supposed to do?  

[00:12:42] Joe:

You would essentially   you would document in that kind of that safe harbor of, like, I have So first of all, let's figure out.  

[00:12:49] ODELL:

You don't do anything. Let's just say   this sounds this sounds like too much for me. It's the 30th December.   Odell decided to have this this episode right right before the New Year. By the way, they gave us, like, very little warning. Not only did they give us very little warning, the IRS gave them very little warning. So you can blame them for that. We're just making it happen for you freaks.   I just wanna ignore it.   I heard someone before we started ripping   some random person in Bickland Park say I'm just gonna outhold the IRS. Like, they're just gonna outhold the IRS. I don't wanna deal with it.   What happens to that person if they want to sell next year?  

Yeah. So They do nothing.   Fundamentally,  

[00:13:31] Joe:

the only downside to that is it's going to be their  

[00:13:36] ODELL:

it would default to their 1st in, 1st out. So it defaults to FIFO. So you're just paying at that point, you're just paying   your your the lowest cost Bitcoin. Well, no. Not necessarily the lowest cost Bitcoin.   The oldest Bitcoin you own is the cost that you're selling at. Exactly. Mhmm. That might not be your lowest cost. It might not be. Yeah. Yeah. He bought in You might have bought at $70,000   at the top of last cycle and then bought at 15,000.   If your first set you start from the oldest. Exactly.  

[00:14:05] Joe:

So It's not that's not the worst scenario in the world. No. Absolutely not. It's just you're gonna potentially pay a little bit more taxes,   but it's it's not the end of the world. And the other thing is, like, just as far as what you need to do and, like, the urgency on it.   I I can't speak for that, obviously, but, like, if you do this in   January 15,   2025   and you're audited in 2028,   2029,   you have a document, and you're like, hey. I did this in January.   I would expect that they're gonna be like, alright. Well, you documented. That's fine.   They could come back and say, no. It's You were 15 days later. 15 days late. I don't think that would be the case. I think it'll be like you made a good faith effort. I mean, they could also just change everything in a year. Right? Yeah. Yeah. I mean, that's probably an important thing to highlight as well. Like, this is all very new.  

It's all subject to change, I would say.   And so   we could easily come to the end of next year, and we're having a clearly different conversation on what the rules are.  

[00:15:06] ODELL:

Okay.   So   we do nothing, and we just paid 5.   You give you're basically giving the taxman the max amount of dollars.  

[00:15:15] Joe:

Right? Your lowest cost basis. Yeah. Yeah.  

[00:15:18] ODELL:

Assuming your first purchase is the lowest cost basis. Yeah. I mean, unless you, like, started buying, like, a week ago, you're, like, basically giving the taxman   unless you start buying at a $108,000   Yeah. You're probably giving him his the most he could possibly get, and he probably won't be angry at you as a result.   And it's probably that's not the end of the world. I I I wouldn't that it's not like there's freaks. There's a reason we didn't title this episode   tax emergency.   I figured   you'd freak out enough by just seeing the words tax and IRS in your SIL dispatch feed. I didn't have to put emergency there as well. I didn't wanna, like, scare you guys. And I think this is a perfect example where if you do nothing, you're really not in this most horrible situation, but you can optimize. Right? And one of the jobs of an accountant is to try and   optimize   your your tax burden and and reduce legally reduce   the amount of taxes you pay. Okay.  

So now now we're actually gonna go through the trouble because it's a day before, but we wanna make sure everything's going through.   Am I am I correct that you're basically so I have 3 wallets. Right? You have the cold storage.   You have the hot wallet, you have the custodial.   You're basically saying at this point   that I'm going to use,   one of those 3, FIFO, like, 1st in first out, last in first out, highest in first out for each wallet you're dictating. And it's not on a per transaction basis. It's on a wallet basis.   They can each be different. Yes. Right? I can say can I say,   I'm doing   HIFO for cold storage,   LIFO for hot wallet, and FIFO for  

[00:16:55] Seth:

In theory, yes? As long as it's Bitcoin that's purchased before January 1, 2025. So then after January 1, 2025, everything's FIFO? Everything is FIFO. Yeah.   Okay. All assuming that you purchase Bitcoin after that point. Yeah. Because this the the trouble with this is now we're looking in the past. So, like, all this data should But it's everything is FIFO on a per tax lot basis. Right? So, like, if you have a different wallet  

[00:17:19] ODELL:

okay. So now let's go to I feel like I'm jumping all over the place, but I'm just asking the questions as I come up with them.   So if it's January   31st,   February 15th,   so the day after Valentine's Day,   and I buy some new Bitcoin,   And I put that in a separate wallet for my cold storage.   And   so my,   my cold storage obviously has older cost basis,   right? But this new one is at $95,000   or whatever price you're at. And I sell that one.   I can use, like, the most, like, like, is it on like, do you understand what I'm saying? Yeah. Is it, like, is my cost base is $95,000   or is it   first in first out across all of my Bitcoin?  



[00:18:09] Joe:

It will be by wallet. Yes. So   Per wallet basis. Yeah.  

[00:18:14] ODELL:

So could you technically, like, spin up   a new wallet for every receipt   and then you'd be?  

[00:18:23] Joe:

In theory, you could,   essentially,   you're gonna end up in the same place, though. Yeah.  

[00:18:30] ODELL:

And that But then couldn't you select which wallet to sell? You can always select which wallet to sell from. Right?   I'm not, like, trying to cheat the system. I'm trying to understand. I'm I'm trying to understand how this works.   Like, are they gonna allow that?  

[00:18:46] Seth:

Well, so  

[00:18:47] ODELL:

that would be assuming that you sold that Bitcoin that you purchased on February 15th. Right. And No. So then comes August 31st or whatever, and instead of selling for my cold storage, I sell from that wallet. Mhmm.   My cost base is $95,000   or whatever that price was. Yeah. And like because because you bought it, like, in River, for example. So River's gonna have that cost basis. Well, then I send it out to River to the self and once we go to self custody, it's a mix everything. Yeah. So it's probably an important thing to highlight.  

[00:19:14] Joe:

And it's   we're talking about 2 different years here. 2025 is gonna be different than 2026.   But you let's say you buy on river,   in 2025.   You're gonna have a cost basis assigned to it. They're gonna know what it is.   You pull it off of river, hold it into self custody, and then send it back. They're not gonna know which Bitcoin you sent back to them. Right? They're not gonna know it was that Bitcoin that you purchased. So you're gonna have to give that to them again. And so it'll be up to you to report. Hey. This is the Bitcoin that I bought on this date, and I'm sending it back to you, and here's the cost basis. I caveat that with 2025 or 2026   because   in 2025,   there's no reporting requirement by the exchange to report the cost basis to the IRS. And so the river   may or may not ask you for it, but they're not gonna tell the IRS, hey. This was $95,000   Bitcoin   that Odell purchased from us and sold for 96,000.  

But in 2026,  

[00:20:19] ODELL:

they're gonna go another piece. Yes. Yeah. This is separate from year. This Yeah. Safe harbor stuff. Right? Correct. This is a different ruling that's Like, I think in your so the safe harbor is for all Bitcoin purchased ever before New Year's here. Right. Okay. So let's finish with this. I I jumped around too much. Let's finish with the safe harbor. Yeah. So safe harbor So how do you actually prepare for that? I'm I'm taking   screenshots   of my individual wallets,   and   then I'm   I'm stamping them and saying HIFO or LifeVoe or FIFO. Right?  

[00:20:52] Joe:

I think that's probably the simplest way to go about it.  

[00:20:57] Seth:

Let me read some of these notes.   Another piece too that is a little confusing is the IRS uses the term account and wallet interchangeably.   From a Bitcoin perspective,   one account and one wallet, I think, is just your extended public address. And so,  

[00:21:14] ODELL:

that's one way that I've thought of it, to me. Your account is your wallet. Easy as well. Well, I I feel like a lot of this is   designed for people that just   buy custodial and stay custodial.   Yeah. And then everything gets more complicated for anyone who actually  

[00:21:29] Seth:

wants to keep self custody. If you've never bought Bitcoin before until, like, Thursday Yeah. Life's pretty easy. You can just tune out right now. Yeah. Like, you know how to deal with this safe harbor. I mean, it's also, like Wait till this time next year. We're gonna have a new episode of Freedom Panic.  

[00:21:44] Joe:

There's also all these rules are written for digital assets in general.   So it applies to   all the other   cryptocurrencies.   And so they had to make, like, these broad rules apply, whereas, like, Bitcoin doesn't necessarily fit into those bubbles all the time. Okay.  

[00:22:00] ODELL:

So but once again, what am I doing? You're taking   you're taking screenshots,   and then you have to time stamp it. Right? It definitely needs to be time stamped. I don't know. Like, do you have to do screen like, I'm not finished, you know, sorting out my prior cost base. Well, I'm not even saying you're taking screenshots of the cost basis. You're just taking screenshots like this wallet had 20,000,000 sats in it. Yeah. Yeah. And here's a screenshot of that wallet with, I guess, addresses shown in the screenshot.  

[00:22:30] Joe:

Something to prove what the account is. Right? Exactly. Like, you need to be able to have something that shows here's the Bitcoin sitting in this account,   and something that you can go back to for audit purposes. So screenshots are probably the easiest way to do that.  

[00:22:43] ODELL:

You could You could sign a message.   As well. That's, like, complicated.  

[00:22:48] Joe:

Yeah. They probably won't even know what that is. I mean, you could do an export out of a lot of wallets. Right?  

[00:22:53] ODELL:

Like in an Excel? Yeah. Like CSV, ESP. If you're a custodian, you could definitely do that. Yeah. Or even, like I wanna say Sparrow has, like, a a good export. Okay.   It's not all of them will, but certainly, like, anything like But then are you taking a screenshot of the export, or you're just keeping the x the CSV file the Excel file?  

[00:23:14] Joe:

It should probably be a screenshot. So you have, like, a time stamp on it. So then when they say time stamps, everyone wants us to, like, upload them to open time stamps.  

[00:23:23] ODELL:

I'm a little bit so technically, the way open time stamps works   is it's just taking a hash of the file, and then it's anchoring the hash in the Bitcoin blockchain. So you can prove that this file   was time stamped at this time and wasn't changed. It's not actually uploading the file   to the blockchain or the open time stamp servers.   Now   the average person can't verify that that's actually happening. You don't know if, like, Peter Todd is actually, like, keeping all the files,   or, like, some, like,   malicious man in the middle is in there and doing it or not. Yeah.   My and then other people have suggested emailing it to yourself. But then, like, Gmail, like, the NSA, like, the Australians, like, everyone gets a copy of all of your wallets. So I really hate the email idea. Yeah.  

Because email is just, like, wide the fuck open.   What about   can some can someone I'm just thinking, like, couldn't someone just, like, print out a screenshot and then take it to their local notary and just have it, like, good old fashioned notarized?  

[00:24:24] Joe:

Yeah. No. I mean yeah. That certainly would work.   It's obviously more manual. The UPS store and have them fucking stamp the day? Yeah. I mean, you certainly could do it that way. You're probably not gonna wanna do that by, like, wanna do that tomorrow. Right? That'll be done. You have a day. You have a day. New Year's Eve.  

[00:24:43] ODELL:

UPS stores are open on New Year's Eve. I  

[00:24:45] Joe:

That's a great way to spend your New Year's Eve. I don't know that that will be the thing that, like, the IRS harps on 2 or 3 years from now. The time stamp. Or whether you time stamped it or not or whether they believe it. I mean, the other thing is, like, you can go back and look at that wallet address on chain and be like, hey. Like, what balance was sitting in there   on that date. Right? And so you'll have blockchain support for that balance if you need to go back to and You can show it hasn't been moved. Yeah. Yeah. Or or that it was moved and when it was moved. Right?  

[00:25:15] ODELL:

You just show the mempool that space or whatever. Yeah. So   I I not overly worried about the time stamping and the documentation of when you did it. But don't you have to time stamp yourself saying I'm doing HIFO? Isn't that what you're time stamping more than the wallet?  

[00:25:31] Seth:

Yeah. You are picking like this is the so the   2 the 2 main options,   are specific unit allocation   and global allocation.   And so we've been advising clients that specific ID is probably gonna give you the most flexibility into the future. Where specific ID versus what? Global. So  

[00:25:50] ODELL:

global,  

[00:25:53] Seth:

the taxpayer   basically   is picking   a general justification, for example, like price per unit. So I bought 2 coins. Price was 50 k a coin.   I'm gonna go off of that, you know, that purchase price. And then maybe you split that into 2 different wallets, and it's 1 Bitcoin for 50 ks and 1 Bitcoin for 50   ks. The specific ID   you're actually documenting like, hey, I've got 1 UTXO   with 1 Bitcoin in it. And, you know, I purchased a 10 ks 15 Different call space for each UTXO? Yeah. And so like maybe you have 3 coins   and one of them Nice. You know, you bought at $1,000 and you wanna keep it. You know, I want that coin to stay at $1,000.  

Right. Maybe you sell that one last if you ever do sell. Specific ID is gonna allow you to do that. So you can hand pick each purchase that you made is each individual purchase, unfortunately, even if it was like a 50¢,   dollar cost average, that is one unique basis. And so it,   if you're someone like me who did a dollar cost average a little too much. Hourly 50¢? I got a nightmare to deal with. Yeah. I mean, every single one of those lines, each individual purchase is its own unique cost basis.   Yeah.  

[00:27:05] ODELL:

Okay. Yeah.   Wait. So this is specific ID versus global. Yeah. So the safe harbor is you're picking specific ID or you're picking global. You're telling the IRS So wallet basis or UTXO basis, basically.  

[00:27:18] Seth:

Yeah. I think that's a good way to summarize it. And, you know, the the one thing to note so the the global allocation   that if you're gonna pick that method, technically, it does need to be done before year end.   Specific ID, it needs to be done before your first disposition in 2025.   Or if you go The first transaction. Yeah. Or you go the whole year, you don't sell anything. When you file your 2025 tax return in April of 2026,   that's the last possible date that you need to make the election by.  

[00:27:52] ODELL:

Hey. If you're doing no transactions.  

[00:27:55] Seth:

That's what you're saying. Yeah. Like, if yeah. If you hold out and you don't sell anything during 2025, you'll still need to dictate. Alright. I'm doing specific Legit my least favorite topic.  

[00:28:04] ODELL:

Only for you guys   and for you freaks. For the freaks.  

[00:28:09] Seth:

Okay. This is all old Bitcoin.   How are we gonna account for old Bitcoin   now? I mean, do we feel comfortable with  

[00:28:17] ODELL:

safe harbor under a belt now? Right. You can just ignore all of this and just do FIFO going forward. You'd be fine too. Yeah. I think the situation we might run into more would be  

[00:28:27] Seth:

somebody bought Bitcoin a long time ago, and they don't know the cost base. This may be exchange as an existing But then your cost base is 0.  

[00:28:33] ODELL:

Right? You just pay the tax man the full amount.   You say, don't throw me in jail. Yeah. I mean And you take a zero cost basis. Yeah. Unfortunately, that's kinda the way it works. We're at a 100 k. Like, the difference between $50 and a zero cost basis is fucking nothing. That is the reality. Like, the the thing I have been advising people  

[00:28:52] Joe:

of, like,   maybe the the good thing or the bad thing is, like, your cost base is gonna trend to 0. Yeah.   I'm like, you bought it at a 1,000 or you bought it at 500. Right? It's like No one gives a shit. Right. You you might as well just pay them the maximum amount. Yeah. So number goes up, fixes a lot of things.   It will make your tax bill go up, though.  

[00:29:11] ODELL:

I mean, you make more money, your tax bills are higher. Yeah. Yeah.   Yes. That's all. I hate taxes as much as the other person, but, like, you're you're paying you pay taxes on on profit. Yeah.  

[00:29:21] Seth:

I mean, capital gain is I beat inflation tax, basically. So Yeah. It's it's inflation savings tax.   Mhmm. So, yeah, that's all old Bitcoin purchased prior to   New Year's coming out of the bank. Yeah. So now there's kind of 2 parts.   The main thing, there's a new form that these transactions will be documented on.   And so most likely your exchange probably used a 1099 b k or the miscellaneous form   because the exchanges didn't really have good guidance. Like, where do we put this stuff? Right? So the IRS has finally come up with the form. It's 1099 digital assets.   And it has, you know, much more data than the 10.99 b relative to these things. You know, it's got the cost basis, the proceeds.  

You can even pick up its ordinary income, long term, short term game.   The kicker is, you know, so if you   if you purchase Bitcoin on January 2nd coming up here and then you sell it, you know, when we're at 500 ks at Christmas,   there's going to be a huge gain there.   You know, but like if you bought it on River, for example, River is going to know that you bought that Bitcoin, so they'll know the cost basis.   But for 2025   tax year showing up on the form spring of 2026,   that cost basis is not being submitted to the IRS. It might show up on there. You can kind of think of it as a suggestion. Like, River saying, hey. We saw you bought this Bitcoin here. I think these match up. Here's a suggested cost basis to use. And it's probably gonna be the right cost basis because in 2025,  

[00:30:52] Joe:

everyone should be using FIFO, and they should be treating it by wallet. Yeah.  

[00:30:57] ODELL:

And so that probably gonna be a And you haven't moved it off of River. Yeah. Right. Right. You're just doing the full custodial  

[00:31:03] Joe:

Yes.  

[00:31:04] ODELL:

Happy suit strategy. Yes. And then the the final iteration is January 1, 2026  

[00:31:11] Seth:

and onwards,   that cost basis is gonna be given to the IRS. So, like, right now then strike or river are just they're just sending it direct after 2026,  

[00:31:22] ODELL:

they're sending what they think the cost basis is to the IRS. Yeah. Or what they know because you Well maybe you moved the point in. Well, no. They they they know it if you if you buy on the exchange and you never take it off the exchange.   And   then you sell it on the same exchange, then they know the cost basis. Yes. Yes. That's the easiest. But if if   if you're   if you're a good Bitcoiner and you withdraw Yeah.   And then you redeposit,   are they just gonna be reporting miscellaneous cost basis? Yeah. Right? Like Like, they're gonna have to get that from you.  

[00:31:57] Joe:

And so   I I actually   I expect they'll start doing this in 2025.  

[00:32:03] ODELL:

But, like, in 2026, so absolutely, like, if you deposit into an exchange It's gonna pop up like you deposit. It's gonna be like, what's your cost base? I think so. You kinda like River started offering that already. Yeah. But it's optional right now. Yeah. Because they track your cost base. It's really well on there, which is nice.  

[00:32:19] Joe:

But they do that as, like, a favor right now. And as soon as it's gonna be, like, when you go to deposit, it's gonna be, like, enter your cost basis. Yeah. I think so. And it will probably be, like, we can't accept your Bitcoin or you Or you'll have a 0 or they're gonna sell you 0 you. They'll put a 0 cost basis. I mean, they could do that. Yeah. If it's kinda basis. I mean, that would be bad if you, you know, you miss that step and you bought for a 100,000, they put 0 in there on you. Oh,   that would be great. But I I think it will be a common practice. I would expect that they're gonna try, like, at least phase it in 2025.  

[00:32:51] ODELL:

Because stocks don't have this issue. No one deposits and withdraw stocks. Exactly. So, like, on stocks,   like, Charles Schwab, like, knows your cost basis for everything. Yeah.  

[00:33:01] Joe:

And you might have bought it on 2 different exchanges, but, like, you're not gonna smooth your stock from one exchange to another. Yeah. Yeah. Like right.   And so it's very much a unique issue with Bitcoin specifically. Like, you can hold it yourself. You can move it around.   You could say this is the IRS trying to prevent you or make it harder for you to do that. I think it's more likely it's   just trying to to wrap their hands around it. Like, not really understanding what they're trying to implement.   But   I I think   if it you know, we have some time before this actually rolls out for 2026   where they have to   they have to collect the cost basis, have to report on the cost basis.  

I would expect some pushback from exchanges between now and then. Like, it's more of an administrative burden hurdle for them. Right.  

[00:33:55] ODELL:

Yeah. Could there be change?  

[00:33:57] Joe:

Yeah. Absolutely.  

[00:33:58] ODELL:

So how do these IRS rules get decided? Like, is   who is is there, like, a a an elected group of people that make these decisions? Or It's a bureaucracy.  

[00:34:09] Joe:

So it's, you know,   unelected bureau   bureaucrats that they would say are  

[00:34:15] ODELL:

Elon fire them? Like, is that within his can the executive  

[00:34:19] Joe:

I actually don't know how the have the IRS is appointed. I don't think he's a   presidential   Yeah. I don't actually know that. But, I mean, essentially, the IRS would say   they are interpreting the rules from congress that congress has laid out.   So congress can pass something that changes. Absolutely. So that would be the easiest way to kinda get this overturned of, like, congress is like, no. This is incorrect. We don't want the IRS to do that. The IRS certainly can't, like, be like, no. We're gonna ignore congress. Yeah. IRS right now is saying, like,   this is our guidance based on the current tax rules in place. We're not creating new tax rules. So it could change. Yeah. And I I honestly, I expected to. I just I wouldn't bake your whole You should have bet on the change. Yeah. You should assume that it won't change. Yeah. And then be happy if it does.  

But I think you'll get pushback from exchanges in 2025,   as they start to dive into this. Like, it's gonna be a hurdle for them to obviously collect it. People are gonna send them the wrong information.   It's gonna be a bad experience for the customers,   especially if you're someone who coined like Coinbase who just wants to, like, have a bunch of activity and trading and everything. Right? Like, I expect that they would have a big lobbying push to get this reduced.   Who knows? Maybe they have a big enough team there where they don't care about it.   But I would expect that they'll be pushed back in the next year, and   ideally, we come around at the end of next year, and we're having a different conversation. But this is what we wanna kind of plan for.  

Okay.  

[00:35:53] ODELL:

So,   okay, that all may I mean,   the conspiracy side   of me   is, like, this is a way to just, like, push people to stay custodial only or even better, like, buy the ETF. Like, you buy the ETF,   you can completely ignore this episode. Right? Because Charles Schwab just knows your cost base and submits it, whatever.  

[00:36:16] Joe:

Yeah. I mean, I I guess the I mean, it's a little bit more complicated, but the flip side is, like, it doesn't have to be that much.   Well, it's gonna be a little bit more complicated. But, like,   the new rules in 2025, 2025,   26, when you're using FIFO,   like, that's not any different than if you were to buy the ETF or keep it custodially. Like, you can still move money around   into different wallets.   It's just gonna be on you to track   that so that if you do convert back to fiat, you have that cost basis.   The other thing is just, like,   convert to fiat as little as possible. Right? Like, if you don't sell, you don't have to worry about any of this.  

Well, we we would say that, but also the same rules apply for spending Bitcoin, which is it's a little bit more complicated.   Yeah.  

[00:37:05] ODELL:

Wait. So   yeah. I mean, I guess if you're just FIFO ing everything Yeah.   Like, it's really not that complicated. Right? Like, you're just keeping a list of your purchases. Got your And then as you sell, you're just, like, crossing out from the list as you go up and just pay them FIFO. And that's always been the simplest. It's not the most tax advantage,   but, like, we work What concerns me is that there's gonna be exchanges,   and   I I know for a fact strike won't do this because   I'm gonna personally make sure that they handle it in the most elegant user forward way possible. But there's gonna be a lot of exchanges that are just misreporting   cost basis and just making you look like a fraud when you're not a fraud. Yeah. And that Right? Like, there's gonna be a bunch of cross they're gonna just basically get a bunch of cross contamination   where it's like   a a person is actually honestly trying to pay their full tax burden. Yeah. Pay discloses the IRS a certain amount, pays a certain amount, and then the exchange is just sending them a completely different cost basis. Yeah. And I I worry about that as well. Like, right now,  

[00:38:06] Joe:

the reality is   people already get freaked out when they see the 10.99   b and it's got a cost basis on there. And, like, this doesn't seem right to me. And, like, we can easily say to them, like, alright. That's fine. You don't need to worry about theirs. The IRS is not giving that information.   They're not gonna say you reported a different amount,   and it's contradictory. Like, you just need to have your support for why you're using the cost basis you are. But, yeah, in 2026, they are gonna have a number there. And if you have a if that number is wrong,   and you're trying to correct it, like, you're either gonna have to get a updated number updated   form 1099   DA   from the exchange,   or have that fight with the IRS,  

[00:38:49] ODELL:

which no one wants to do. I think it's the least zapped episode in here for you, by the way.   Shout out to ride or die freak Mav 21 with   42 100 sats, the highest sap   so far.   Everyone just,   focused on saving their sats. They're Yep. Higher is still now.   Oh, I when I was laughing earlier, it's because Jevi in the live chat said, Odell legit glazing over,   quote, unquote, no way I'm doing any of this.   To be clear here,   to everybody listening,   Like, I   I   probably will just   FIFO everything.   I'll just FIFO I'll give them their max taxes.   You know?  

Please serve with a gun.   Don't bother me and my family. Here's your here's your   vague. Like, I hate taxes as much as the next person, but   screenshots and stuff, like, I that scares the shit out of me. Like, I don't want, like, online records of my Yeah. It sounds like a privacy nightmare. It sounds like a lot of people are gonna destroy their privacy over this. Yeah.   Yeah. No. And I think that's probably a good point. When they could just pay, you know, 10% more to not just like, if that's really the equation. Right? It's like,   are you gonna take a privacy risk to save   10 to 30% or something? Right? I don't know what the number is. No one knows. The number is on a close by a game basis.  



[00:40:16] Joe:

And I think it probably depends on how good your privacy is today, honestly. Like like you said, like, if you're the guy who's got all their funds at the exchange, like, you don't have any privacy. Right? Yeah. If your funds are already on the exchange, then you're and this is easy. Like, you've already done a whole bunch of stuff to really keep your Bitcoin private.   You've done, you know, coin joins, all that stuff.   Like,   this would be a huge step backwards for you   for   potentially a tax savings, but, like, even that is short term and that, like, if you're paying FIFO and you got a low low cost basis,   you may be paying a higher tax this year, but you've met you know, it's a lower tax bill next year, for example. Right?  

Right. And so it's not the end of the world, and it's not   if privacy is important for you,   it's gotta come at a cost. Right? Right. And so that's always part of the equation.  

[00:41:15] ODELL:

Okay.   The chats are not really giving me any questions. Do you guys really have no questions? Do we just or do we make this complicated topic so simple   that you guys have no questions?   The zaps are now coming in. Thank you. Thank you, sir. I don't know who this is. The same, apparently. Yeah. I don't know. It's just a miscellaneous   end pub. I gotta press refresh.   The chaos 1517   sent 42 100 sats. Thank you.   His his comment is this Zap identifies as a nontaxable   event.   I,   someone in the live chat asked what if he had BlockFi. I don't really know what he means by that, but you have no money now. Yeah. That's tough.  

[00:42:03] Joe:

Yeah. I mean, most likely   bankruptcy  

[00:42:06] ODELL:

loss event. There's, like, a 90% chance that's a troll comment.  

[00:42:10] Seth:

Yeah.  

[00:42:12] Joe:

But, yeah, I mean, there'd be a loss on there.   Tax deductible.  

[00:42:15] ODELL:

They get their money. Aren't they getting their money back through FTX or whatever? Oh, it was, like, 50% or something. Are they getting, like,  

[00:42:23] Seth:

the what was it about, like,   US dollar value at the time FTX collapse? I thought that was FTX.  

[00:42:30] ODELL:

Yeah. But FTX owns BlockFi.   To save to save customers,   BlockFi's Zach, while he was on he went on paternity leave as his company was going under and then sold it to FTX. And then FTX   turned out to be a Ponzi scheme, and then everyone  

[00:42:46] Joe:

got double fucked. That was a crazy time.   Yeah.   Yeah. Now FTX came to the rescue.  

[00:42:52] ODELL:

That's what he said.   I didn't know that FTX bought, BlockFi. Yeah. Yeah. It was pretty hilarious, actually. I   mean, it sucks. It sucks for the people that lost money, but I also was very loud telling people not to use block 5 or FTX so I can sleep well at night.   Do you guys so then there's another IRS thing, which is this   broker rule. Do you guys have an opinion on this? Have you looked at it at all? Or  

[00:43:16] Joe:

A little bit. Slightly.   Yeah. I mean, I think broadly, we were discussing it earlier.   A little about outside my wheelhouse, but essentially, like,   for exchanges,   like, it's easy. Like, they have to do reporting, but, like, the guidance   on   some of this stuff is requesting   reporting   on data that   they don't have. Like,   we were talking about, like, RoboSats, for example. Right? Like, in in theory, like, they fall under this   guidance where they're not collecting information from   users. And they're not custodial. They're not custodial. They're not holding funds.   Just based on the IRS,   like,   guidance there, it's like, oh, they're in violation, but they have no ability to actually collect   that   data   by design. Right? Yeah. So unless they're gonna come and say, it's illegal to do this, which is a whole separate Aren't they effectively saying that?  

They're effectively saying that, but that's not what the actual rule says. The rule says, like, hey. You can do whatever you want. Just report it. Right?   And so it gets into, again, like, the IRS cannot make laws or cannot make rule. And so that's where I think they're gonna get a lot of pushback and and legal arguments from,   hey. The IRS is overstepping their bounds as far as   creating new rules versus,   enforcing the rules laid out there by congress. So   we could I don't know that's worth spending a ton of time on right now and that there's gonna be a lot of changes in the next couple of years before it, in theory, goes into effect. A couple suits. Like Yeah. We probably don't have to worry about it too much right now. But, I mean, what we talked about earlier, our interpretation is  

[00:44:58] Seth:

probably good luck enforcing some of this stuff. Like, I don't how do you get RoboSats? Yeah. K y z.  

[00:45:03] ODELL:

Yeah. I mean, the other thing, though Like, you're you're de facto criminalizing the operators. Right? Isn't that the strategy?  

[00:45:10] Joe:

It it seems like. And and, unfortunately, we saw some of this with on the lightning side with Wallace, right, where they just said, like, we're just gonna, like, get out of the US and we're like No. You're just losers.  

[00:45:20] ODELL:

And so, like,  

[00:45:35] Joe:

bad for US consumers.  

[00:45:38] Seth:

I mean, maybe the incoming   administration,   there's some changes there.   I think the rhetoric from Trump and his team is that they don't want innovation to go offshore. So  

[00:45:49] ODELL:

I would yeah. And there's gonna be and Elon are just gonna save us. Right? You can just ignore the whole episode and just Trump and Elon will save us.   Do you guys have an opinion on   the corporate transparency stuff? Do you Couple. Do you pay attention to that? Did you see that they there was an injunction and then they overturned it again? Yeah. You you have to the beneficial owners of LLCs need to be docked with Vinsen, I think. Yes. It's with VINSON. So right now, it's off. Right? Yes.   Yeah. What do you mean? It's back on? No. No. It's off. Yet. As of when? Like stopped.   It was I think back December 30  

[00:46:28] Joe:

23rd, it was back on.  

[00:46:30] ODELL:

I did today. It's back on. No? Did you Is there a new update today? I said it was probably gonna be back on. Wallworth? And that's just something just happened, like, in the last few hours.   Oh, I got a text this morning that it was back on.  

[00:46:43] Seth:

I might need to update my information. Need to As of We saw it being, like, July. We're just back and forth. As of 26th, it was off.  

[00:46:51] ODELL:

And today's 30th.  

[00:46:52] Joe:

Yeah. So I I might be out of date at this point.  

[00:46:55] ODELL:

Yeah. I think it's back on. So so you guys weren't aware that it's back on? No. That's my understanding. The 5th circuit court brought it back.  

[00:47:02] Joe:

Yeah.   They they were always the like, they I don't know. I'm not made the injunction. Lawyer, not an accountant.  

[00:47:09] ODELL:

I'm not a a judge. I   don't know. Yeah. Let me check. Let's check their website.  

[00:47:15] Joe:

Did they update it on their website? Oh, I'm glad I asked.  

[00:47:21] ODELL:

Jim Crider asked, if I elect HIFO, can I later make a specific election for a particular lot? For instance, wanna give Bitcoin to a charity and want to get the lowest cost basis.   I assume no.   What was the if he he starts with He elects HIFO, and then he later wants to  

[00:47:41] Seth:

not use HIFO, I guess. The way I interpreted that was no. So the the election that you're making, whether to do specific ID or global, is irrevocable.   So,   let's see. In that scenario,   he could just set aside   some Bitcoin. Maybe he will do that and give it to charity,   down the line, and he can go ahead and assign the cost basis that he wants, presumably the lowest one for that amount.   Even if he chose Haifa?   No. Because   that that the choice does need to be made  

[00:48:19] ODELL:

now. And you have to be consistent. Right? Yes. Yeah. This change is irrevocable.  

[00:48:23] Seth:

So  

[00:48:25] Joe:

just on the POI stuff,   the last update on their website is from December 27th   saying it's it's a voluntary submissions only. Maybe their website is just not updated. Okay. So it's back off. The TBD.  

[00:48:40] Seth:

I'm saying it's back off right now. Yeah. Back off.   But, yeah, I would check that, you you know, whenever you listen to this, it probably will. Before before that, they had moved the deadline back to January 13th anyways.  

[00:48:52] Joe:

So any any between between now and January 13th, I would just keep an eye on it and not do anything before that deadline. It's obviously   the best guidance we could give right now.  

[00:49:02] ODELL:

Okay. And now I have another question.   Why wouldn't you just select when would it be a bad selection to just do HIFO everything?   All your existing wallets. Is there any bad situation to have HIFO?   How is that I'm can't I didn't even know HIFO was a thing. Yeah.  

[00:49:19] Joe:

Honestly, no. The rare, like, exceptions there is   if you have a year where you're don't have a ton of income come in   and you can get, your your capital gains that you're paying is at a 0% cap capital gains rate,   then you could use a lower cost basis, and it doesn't hurt you. Yeah.  

[00:49:38] ODELL:

But is hypel legit? Is that actually, like, a thing? Like, people do it and don't get audited? Absolutely. Yeah. I mean, it isn't it basically a specific ID you're picking? It's the same model they came, but yeah.  

[00:49:50] Joe:

No way. I mean, people have used it.  

[00:49:53] ODELL:

It seems like Do people use it for stocks and shit too?  

[00:49:58] Joe:

Not a 100% sure. No. So the difference is   Bitcoin is not a security. Right? Yeah.   So I like to make that point.   The Irish treats it as property.   And so because they treat it as property, you can   choose different,   different Bitcoin that you're purchasing at different times. And so you have more flexibility there   with that classification   as property than you would with a, like, a security, for example. Yeah.  

[00:50:32] Seth:

And one thing to note,   wash sale rules do not currently apply   to cryptocurrencies.   So This way, what a wash sell rule is. Yeah. So in traditional   finance, you know, you you buy the S and P 500 ETF at the top. And then after Powell makes his comments, it drops. So then you sell it at a loss. Right?   If with Bitcoin in mind, you're probably trying to lower that cost basis. Right? So you won't be able to do that with security because,  

[00:50:59] ODELL:

there's basically a You don't have to wait you wait 30 days. 30 days. It does not apply for Bitcoin currently. And then they got rid of it. Doesn't it apply now or no?  

[00:51:08] Seth:

I have heard in Canada you can't do that. But as of right now, you can wash sale your Bitcoin. So You can just immediately buy it back? Yeah. So you bought it at the top in 2021? I thought they got rid of that last year or somehow. They've been talking about it forever.   And As of right now, it's still live. You mentioned there's a box on the form where, like, it seems like they're getting the bracelet. It has a box that says wash sale disallowed. So But that's not the rule yet. So Yeah. And, like   Yeah. So why do they have the box? What's the box? They're gonna change the rule one day. Yeah. So there's a couple of   So you're supposed to check off the box after it's not allowed or No. So, like, that won't be anything on our side. That's just saying, hey, in the future, we're probably gonna change the rules and wash sales will apply to Bitcoin.  



[00:51:52] Joe:

Okay. But but, again, that will have to be  

[00:51:55] ODELL:

No. If you separate. If you use FIFO or LIFO in the past,   hypothetically, and then you wanted to switch to HIFO for the safe harbor, you can just switch? Yeah. There's no problem with that. So, really, the best advice is everyone should just  

[00:52:08] Joe:

choose HIFO. Yeah. As long assuming that you have, like, your cost base is in order, you can you go back and get the information that you need. Document your wallets offline. Yeah. Write down, I choose HIFO. Yeah.  

[00:52:22] ODELL:

And then somehow time stamp that. Yeah. So, I mean, I guess you could mail it to yourself like snail mail. Right?  

[00:52:29] Seth:

Right.   You could. Yeah. That would be Yeah.  

[00:52:31] ODELL:

You know, keep it in the envelope. Right? The other thing that you you see a lot of,  

[00:52:37] Joe:

it'd be interesting to get your perspective on it. Like, a lot of people will use,   tax software, coin tracker, stuff like that,   which is good from, like, a quick and easy calculation.   You're obviously giving all your information to 1 third party.   Obviously, it's just a trade off like anything else, but, like, there's I would say there's significant downside to use that as well. What are your thoughts?  

[00:53:03] ODELL:

Yeah. Obviously. It's, like, fucking horrible for your privacy. Yeah.  

[00:53:07] Joe:

I mean, it's   yeah.  

[00:53:09] ODELL:

There's trade offs everywhere. The most convenient stuff will probably be I mean, like, if you care most about your privacy, like, you should probably use, like, a composition notebook to track it. Yeah. Yeah. And then the step above that is you just do, like, a local Excel file Yeah. Which is like that one. You're not going crazy. It can actually do math for you. You don't have to do the math yourself in a composition notebook. And one of the nice things about that is, like because we've had people that use some of the coin tracking software.  

[00:53:34] Joe:

Obviously, they're giving out their privacy, but then they also like, it's a black box where they don't know, like,   if the calculation is correct. So they're just  

[00:53:43] ODELL:

like, hey. I agree. Spits out a number. Yeah. A lot of times, it'll, like, miscalculated  

[00:53:47] Seth:

internal transfer as a taxable event, and,  

[00:53:50] Joe:

you still have to go in and manually adjust that. So if you're doing it in your own Excel file, like, you have to be like, you have to understand how it's working   and get to the number yourself, which is why we'd like, we generally we do that with our clients to be like, here's the number, and here's how we got to this number. And then you can also obviously build on it as you're buying more and everything like that. So Excel,   unfortunately, is a a good option for a lot of things. So,  

[00:54:17] Seth:

for better or worse. Matt, have you heard of RoTke for tracking your cost basis?  

[00:54:21] ODELL:

No. What is it? It's r o Yeah. Just speak up a little bit. R o t k  

[00:54:26] Seth:

I. That's how you spell it. No. Never heard of it. We had one client mention it on a call. I don't know if it is, like, a 100% open source, but it it's definitely different than, like, CoinTracker.   It does have room for, like, NFTs and staking and all that. But,  

[00:54:40] ODELL:

that might be one option that people could look at. It might be a little better than maybe from a privacy perspective. I mean, I think you just, like, you just use an Excel. You do a local Excel sheet. Or, like, if you're on Mac, Numbers, or if you're on Linux, OpenOffice,   but just like a   not Google Docs Yeah.   Spreadsheet.   Yeah.   And then you just   date,   sale, call spaces, price at sale. Yeah. Yeah. And then you just do the Greg Bay you do the math. Once, you know, that's,   like, it's a combination of the mental burden of doing the math and,   obviously   high cost on savings, which is insane that there's a tax on savings in the first place. Yeah.  

That really grinds my gears.   Okay. I still  

[00:55:30] Seth:

What's still confusing you?  

[00:55:38] ODELL:

It makes sense to me   as not an accountant or a lawyer   that you would just establish HIFO or whatever.   But I still can't believe that they're not, like, auditing people automatically if they're doing HIFO. Like, I Yeah. So   I think kinda And it's like even if you're being completely honest, like, audits just fucking suck. Well You don't, like, I in ideal world, you just don't wanna be audited in the first place. So I think 2 things on that.  

[00:56:07] Joe:

You're not telling them what you're using when you're giving them your hall spaces.  

[00:56:13] ODELL:

And so Right. So, like, they let's say they know hypothetically that you've been in Bitcoin since 2016 Yeah.   And you're just using HIFO Yeah. And you're basically, like, paying them very little in taxes because you've still been stacking. Right.   Probably getting audited.  

[00:56:28] Joe:

I wouldn't know if I would give them that much credit. Really? How much they know. Yeah. They're they're not this all knowing entity like they're okay. Yeah. I mean like.   This is not tax advice. I mean the the reality is eventually if you're living your life on Bitcoin   number goes up. Like, you're going to be diving into some of those earlier coins, and so it doesn't last forever. Right?   If you stacked,   you know, a whole coin this year and you have a cost basis of $100,000   on it. Right? Like, that's a lot of money Right. Versus if you could have gotten a couple coins at $1,000   each. Right? Like, and so, like, just number wise, like, you're gonna eventually get into older and older coins there if you're spending your Bitcoin,   you know, to live your life. Right.  

And but I I think there are, like, red flags there, so you have to look out for. Like,   tax loss, harvest fee is a great way to kind of, like, Bitcoin goes down. You sell it. You buy it right back. You have to so horrible for your privacy.   Horrible for your privacy, but also a potential flag there where it's like, hey. I know you, like, you bought 5 Bitcoin,   and then you told me you lost   $50,000   on it because but I know the price went up last year. Right?   And it's like, well, the time that I bought it and sold it, I lost a bunch. Yeah.   That could easily be something where it's like, we don't really know if that seems right to us. We know Bitcoin went up. You said you had a huge loss. Like, that would be something I'd be more worried about   raising a flag for the IRS even if it's right, even if you did everything according to the book, if you're trying to stay away from an audit.  



[00:58:06] Seth:

Would you say that you might be more likely to be audited simply,   with the yes or no question on the front rather than   because see, the Bitcoin   sale proceeds are lumped in the same form with, like, stock. So it's not that out of Whether yes or no. Do you own Bitcoin or do you not?  

[00:58:23] ODELL:

Yeah. So Have you ever bought, sold,   created Bitcoin, that one? Digital assets, that checkbox? The nuance there  

[00:58:30] Joe:

is that it's not it doesn't include bought.  

[00:58:34] Seth:

So if you just bought Bitcoin I think it does include bought. So there's a couple of there is a It's up to interpretation,  

[00:58:41] ODELL:

isn't it? Well,  

[00:58:42] Seth:

I was just on a IRS CP the other day and learned another scenario that it's yes. So we can kind of run through these. So the question on this upcoming tax form so this will be on Wait. No. What was last year's?   I think it's the same just minus the date. It looks the same. Okay. So continue.   At any time during 2024, did you a, receive   as a reward,   award, or payment for property or services?   Or b, sell, exchange, or otherwise dispose of a digital asset. Exchange.   So   that is   like you swapped Ethereum for Bitcoin taxable event.   If so Wait. It's not swap dollars for Bitcoin? No. So for anyone listening at home, if all you do is buy Bitcoin and hold it, you check no. That's it. Interesting. Now  

[00:59:29] Joe:

But then I think a lot of people checked yes if they just bought only. Yeah. Well, then, I mean, you can get into, like I don't love this rule, but, like, you can get into, like, trancher and fees. So I learned I was shocked to hear the IRS say this. But  

[00:59:42] Seth:

if you   so let's run a scenario using Stripe.   You're gonna send some Bitcoin that you just bought in Stripe to your cold storage. And you say, I can wait 24 hours. Right? And you take that delayed option, no transaction fee.   The answer is no. If you send Bitcoin from an internal personal wallet to an internal personal wallet and it does incur a transaction fee, the answer is yes.  

[01:00:06] Joe:

Technically, you just posted some Bitcoin there of a transaction fee. 50¢ or whatever it was. So,   I mean, that basically puts everyone in the just mark the box anyways. And the the thing I'd be worried about there is, like,   you mark yes, and then you don't have anything where you actually report any significant transactions. I guess, in that case, you'd be reporting the 50¢ that you Right. Incur for the fee and then you're But it's a red flag if you're saying yes, but you're not actually paying them anymore. Exactly. Yeah. So I worry about that as well. Back thirds that can check, no. You didn't own any assets, any digital assets to begin with.  

[01:00:42] Seth:

You maybe bought Bitcoin last year. You just held it this year. You didn't move it or sell it or do anything. The answer's no. If you purchase   and just hold it, the answer's no. And then if you transact it internally and there's no transaction fee, the answer's no.   Everything else, the answer is yes. If you received an airdrop, if you received a fork, if you swapped your Ethereum for   your   Bitcoin,   if you're paid for services or goods with Bitcoin,   and then, like, staking mine. But none of you just bought? If you just buy and hold, the answer's no.  

[01:01:17] Joe:

And apparently, if you just buy, it don't move. And if you buy yeah. If you buy and you just sit on it, the answer's no. But  

[01:01:26] Seth:

that one, I I really didn't like seeing But so in 2026,  

[01:01:30] ODELL:

when they're sending the form when the exchanges start sending the forms directly to the IRS, are they sending them a if you only bought, do they send them a form, or they only sell They only send the form to re report the proceeds from sales. So if you never sold, they're also not sending a form. Correct. And that's the same, like, if you don't sell any stocks, you're not gonna get a brokerage statement. Right. So Yeah. You just don't get a contract. Moved it off.  

[01:01:54] Joe:

There's no reporting there for that.  

[01:01:57] Seth:

Okay. Move it off with well, yeah.   Never mind. Yeah. What This is I got confused. This is there's too much going on here. Okay, Freaks. Does anyone have any more questions? Because I feel like we covered everything.  

[01:02:10] ODELL:

Yeah. Oh,   Nick b is asking, what is the cost basis on mine Bitcoin?  

[01:02:17] Joe:

Essentially,   fundamentally,   the Bitcoin mined is   revenue and taxable   at the time it's earned.  

[01:02:25] ODELL:

The price at that block height. Exactly. So, you know, you got 3 blocks yesterday, whatever it is  

[01:02:31] Joe:

or however your pool is,   calculating that.   We will generally get an export from the pool   that says here's how much Bitcoin you mine on a given day.   Either put it on the price at the time that you mine the block or the average over the course of the day and use that for revenue for mining. You're probably not gonna get in trouble if you just use the closing price of Bitcoin for the day. If you do it, you can. Yeah.  

[01:02:55] Seth:

The most important thing with anything with the IRS at the end of the day is just good faith and stay consistent.  

[01:03:01] ODELL:

Yeah. Yeah. Don't play games with them. Just Right. Not worth it.   Like, you're just you you you do your best to pay your full obligations,  

[01:03:10] Seth:

and we'll do our best to help lower that obligation.  

[01:03:14] ODELL:

Okay. Awesome. Guys, this has been great. I mean, it's been kinda great.   Yeah. Yeah. Before we wrap, I just want to say to all the freaks that continue to support the show, whether that's through ZapStream   or Fountain,   Fountain podcast app or other podcasting 2 point o apps, you guys make me   continue and and keep tracking through. The show obviously doesn't have advertisements,   so your support means a lot.   The top boost from podcasting 2.0   last   episode,   episode 146   with   Fran from Zapstore was 8   with 7,777   sets saying Zap Store sounds much needed.   Nakamoto 6102   with 7,000 Sats saying appreciate you. And doom satoshi with 3,333   Sats   saying bootstrapping web of trust with ship posting and Sats. Thank you for your time.  

Guys, this year, Fountains released their their,   report for the top shows of the year. Ciel Dispatch got number 13.   Recap got number 1, which is fucking badass. So all you freaks that support that show, thank you.   Thank you a lot. It means it means it means the world. But dispatch getting 13, considering how bad I've been about   consistent schedules on this show,   I think says a lot. And it's all about you guys, so thank you guys.   Seth,   Joe,   final thoughts.  

[01:04:45] Seth:

Go ahead. We'll start with Seth. Yeah. I was gonna say that,   yeah. I mean, like, at at the end of the day, Matt has a good point. You could just default to   FIFO for everything, and you don't have to report much.   But if you want the most flexibility going forward,   in the example of HIFO to pay as little tax as possible, going with specific ID is probably gonna be your best course of action.   You have until the first time you transact with Bitcoin next year or if you don't, when you file your 2025   tax return for that. But why do you even need specific ID if you just do HIFO?  

[01:05:23] Joe:

I mean, that's a good point. Yeah. Yeah. You're kinda just  

[01:05:27] Seth:

you have 2 choices. Specific ID or global. So you're just telling the IRS. I mean, you're doing HIFO on the back end, but you're telling them, hey, I'm doing specific ID and this is what I'm declaring.   Right. So you just have to declare 1 of the 2. Doing HIFO,  

[01:05:39] ODELL:

how you're describing it would be. But if you do HIFO global, isn't it the same as HIFO specific ID?  

[01:05:47] Seth:

The global is a little tricky to me. The the global is like you're picking based off of a certain data point. So you could pick date or you could pick cost basis. So, like, all of my 50 k Bitcoin purchases goes to this address. Yeah. The other nuance there is, like, it'd be HIFO by wallet.  

[01:06:06] Joe:

And so if you have 3 wallets, 3 different HIFO in each one versus specific ID   where you're just pulling from that individual wallet, it's probably a nuance there where it's you're gonna end up in the same place.  

[01:06:18] ODELL:

Okay.   I think we're all just gonna be paying FIFO. It seems like it's we got one day left here. I hate it as much as you guys hate it. Yeah. Okay. Awesome.   Final thoughts, Joe.  

[01:06:31] Joe:

No. I mean, thanks for having us on.   It's the most exciting topic to talk about.   Despite our profession, we don't necessarily love this stuff, but,   hopefully, we're able to get some information out there for people.   So, yeah,   obviously,   other questions come up, they're welcome to reach out to us.   Not a ton of time left to dive into it for each individual,   but we'll we'll continue to tackle this into 2025.  

[01:07:01] Seth:

I think those are a few people that sleep better tonight,   knowing that it's not Yeah. It's not an emergency. It's not the end of the world. Because everything I was reading this morning, people are like Like, freaking the fuck out. I'm not sending a screenshot to the IRS. Yeah. It's like It's just fair, but, like No one has to send a screenshot to the IRS. Yeah.  

[01:07:17] ODELL:

And worst comes to worst, you're just ending up paying FIFO. Yeah. It's not the end of the world.  

[01:07:22] Joe:

And just don't sell your Bitcoin. Just hold on to your Bitcoin. Sell it, you don't do it. That's more of a meme than reality.  

[01:07:29] ODELL:

Okay, guys. Oh, one more thing.   Do how how do if people need a new accountant, how do they reach out to you guys?   Do you do you guys have slots open? Are you taking new users or new clients? We're filling up really quick. We, we're  

[01:07:45] Joe:

we are kinda full, but we're also looking to hire potentially.   So your accountant reach out to us.   Not in your perspective, Brian.   A client, well, you need to get those additional accountant, and then we'll be able to take care of you. But now you're not be a client. You have to bring them an accountant Yeah. To work with them. BYO   and bring your own accountant. No. You reach out to our website.   We're looking to expand for 2025 and make sure that we can continue to to support the Bitcoin.  

[01:08:13] Seth:

You can email tax at satoshipatchioli.com,   and one of the 2 of us will answer it.  

[01:08:20] ODELL:

[email protected],   or they could go to satoshipatchioli.com   for more information.   Exactly. These guys literally said right before we went on, they're like, we're not even advertising our product because we have we have too many clients. They they just did out of the goodness of their heart because they knew everyone was panicking.  

[01:08:37] Joe:

And And one of the help of Yeah. We had a whole bunch of clients that were like, you can't be with the all individually. Yeah. We'll we'll talk go talk to Matt. He'll have all the good questions. And then, hopefully, this applies to them. And if not, we'll follow-up with it individually. Honest I mean, I'm kinda pissed off that I had no idea HIFO existed until this conversation. We should have more tax conversations. Yeah. It's like dark. Like,  

[01:08:58] ODELL:

fair enough. I mean, you guys have never done my individual returns. You just do Yeah. All my businesses,   which I'm very grateful for. Thank you. Yes.  

[01:09:08] Seth:

It's awesome doing the return for our HR while you're listening to our HR. It's it's a vibe. Right? Yeah. It's pretty neat.  

[01:09:14] ODELL:

Awesome. Freaks, I have,   it's a it's a doubleheader   dispatch   week.   I have Buck Perley, who's head of open source at Unchanged.   We got a bunch of interesting things to talk about, including   some kind of announcement that I don't know what the announcement is. So that's gonna be Wednesday at 1900   UTC,   which is   2:2 PM EST if you don't if you haven't gotten with the standard of UTC yet. So, join us live for that or, you know, just listen to your favorite podcast app. Huge shout out to Seth and Joe. Thank you guys for joining us. Thank you for having us. And stay on 1st Access.