Micah Fraim, Crypto and NFT Obsessed CPA

Hi, my name is San Tito. This is CryptoKid Podcast. I'm going to be talking to you guys about blockchain technology and cryptocurrency. Welcome to CryptoKid Podcast. Thank you, Micah, for showing up and taking the time out of your day to hop on the show. So why don't you give a quick introduction of yourself and how you started your company? Yeah, so I've been in practice about

10 years now. I started the company largely because I was in corporate America working for a Fortune 500 company and hated every minute of every day. Realized I couldn't do that anymore. So started my firm in 2013. And like any entrepreneur, just started out, just taking on any business that you could to survive. Once we got a little more established, we started working much more with

either online businesses or really growth-centric companies. Largely just as I get bored really easily. So people who had stable positions, there's not, there's only but so much advice I can give. So people with rapidly changing companies, there's a lot more value we can provide. So we've been doing that for about a decade and then a couple of years ago, got into crypto, mostly as an investor

in a hobbyist and very quickly realized and trying to do planning for myself. But there's next to God in South. There and very, very few CPAs who seemed to understand it. So kind of ended up here on accident just because we were blockchain enthusiasts and needed to do tax planning and kind of just as we started doing it for ourselves and talking to people in discord

groups, realized there was a lot of needs. So that's kind of the 30 second run down of how we got here. I appreciate it. And I also forgot to mention that you wrote a couple of books that are available on Amazon. That's pretty exciting too. Yeah, I mean, they're self published, but I've got two business, they're called the little big small business books. It's volumes one

and two. And that's just finance tax accounting advice. And then we also again with the lack of crypto guidance. We wrote another one last. We wrote another one last year called decrypting crypto taxes. And we have it set. Those are all free on Amazon. It's on the digital versions at least. And every chapter is basically an FAQ that we got of how a staking income tax,

how are nodes taxed? Do I have to pay tax on my play to earn rewards? So that way, just as a quick and easy resource for when people are trying to find a specific question. Largely because no one's going to sit there and read that for fun. It's usually because they have a specific situation and problem that they're trying to answer. Absolutely. Absolutely. And those. And

the next question was about the people who are interested in reading the book, the links are in the description down below. Now, before, as I remember when crypto first came out. Back in 2009. Well, Bitcoin, it was, you couldn't, you couldn't like take taxes out on it. And that's what the big driver was like, oh, we can't get tax done is some might as well invest

our money. And now the government has really been clamping down and Uncle Sam wants a piece of the pie. How are crypto's tax? Well, it depends a lot on the bucket of crypto activity that you're involved in, because liquidity pools are going to be taxed then differently than coin for coin trades versus mining income. There's, there's different subsets. But the bad part is that almost every

transaction that you have with crypto aside from buying it generates some kind of taxable debt. And even just even just buying it, that's enough for you to have the disclosure that's on the face of your tax return now, or they ask if you bought disposed of held gifted any sort of digital asset. So exactly how it's tax and what buck at the income falls and is

varies a little bit based on the type of activity. But pretty much if you're receiving crypto income of any kind. It's a pretty solid bet that that is taxable income. So it depends again on exactly where your where your assets are held and where the activity is taking place. So if you're on coin base or buying it, you're going to get a lot of money. It's

an answer, some centralize exchange, and you're just using that one exchange. They're going to generate a report for you at the end of the year that's going to give you most of the information you need. It's going to give you how much staking income you got. If they're offering interest on your deposits, it'll tell you that it'll tell you every transaction you have on trading of

your cost basis, whether you held it for a year or not, your sale price, the exchange fees. They'll give you all of that. So you can just use this one. It's a simple report and you're pretty much covered. If you're using multiple exchanges and you're transferring a whole lot or you're doing everything on a true D5 platform, you don't have any of that. So what you're,

it's, it's unfortunate, but what you're pretty much forced to do is use one of these specialized software programs like coinly, coin tracker, coin tracking, dot info, Zen ledger. There's like 20 of them that all that all function more or less the same. But what those are going to do is they're going to either from your centralized exchange that most of them will have APIs that you

can generate. It'll pull all that those transactions in there. Or if you're doing it on D5, usually they'll just pull it from your public ledger address. And I'll pull all that activity in and then it's up to you sort of like if you were using quickbooks or a traditional accounting software. They'll say, okay, here's what we're seeing. Here's the bank feed basically. From from from ether

scan, but we need you to tell us if this was a trade or a transfer or what it is. And once you do all that work, then it will generate a pretty clean report for you. So then you use that on your tax return. So what if someone's just like a holler or someone that likes a whole sense like 2015 14 and they haven't taken out

any crypto money. Do they still have to report that all the way back to 14. You don't have any transactions for the year that you have to report. You still have to attest on the face of your 1040. Yes, I have crypto, but just buying or holding crypto doesn't generate taxable income. So those are the few people where we're crypto actually ends up being easy from

sort of a bookkeeping standpoint because there's not much to report. You're just buying and you're hoodling and that's kind of it. And it doesn't really become relevant until you just decide to sell. Okay. And then and then how are people are going to be able to contact you and your company if they're if they're concerned about it. Like is there like an app or a website

that you reach out to. Yeah, they could go to crypto tax CPA.com is our crypto site. And that's got a link to our book. It's got blog articles for all the new stuff that's coming in that then a contact form. So. It will really depend. We always encourage people to reach out. But a lot of times we'll find this in discord groups or in or telegram

groups where we largely work with people who are making six figures or more in crypto. So for a lot of people, if you're just kind of if you're a hobbyist or you're just getting started. Given our pricing, there's no way to make that makes sense. There's no way to ROI based on the fees that we've got. But in those cases, not not only do we hope

that people will eventually grow to where our services will be worthwhile. We can't least point you in the right direction of. Here's the rough. Here's roughly what you're running into. And here's what here's sort of the baseline planning that we think you should do to to set yourself up for success. All right. The concentration. Oh, my band, my band. No, no, you're good. No, you're good.

Um, but anyway, long winded way of being that if people were you said it doesn't always make sense to work with us personally. But I'm always we do most of that through email when we're determining whether or not it's going to be a fit or not. But I can at least link you to some articles and some resources, even if it's. Hey, I've got a couple

grand worth of Bitcoin that I'm trading. I'm not sure what to do. Just because what we found this we've been doing this initial, especially the case after the big bull run we had in 2021 and the market crashing in 2022 is people are coming to us. Six, 12 months after all this stuff has been going on and had we just been able to have a very

short conversation with them. We could have they could have avoided some either some significant tax catastrophes. Because we had a lot of people who. Had realized income in 2021 of one to $3 million. But they didn't cash out and didn't do any planning. So they just got hammered. The other thing that we're running into is occasionally people will come to us for tax advice or finding

that they got scammed. Or hundreds of thousands of dollars. And if we had just been there for the conversation a little bit earlier on, then we could have said no. You're that you don't have to worry about the taxable income because you're not getting income at all. You're this is this is a scam. Yeah, people got to watch how to be scammed. It's happening all the

time. Now are the consultations free. Just to reach out consultations. If we actually deemed that it makes sense to hop on a call consultate. And say, Hey, here's what I've got going on. We can tell you pretty quickly whether or not it makes sense to to book the consultation. What are fees would be. Friends with people will just kind of be talking in the servers. I'd

say eight times. I'd say, you don't want to you don't want to pass for this. You're just you're just not there yet. But here's kind of pitfalls out of wood. Here's just some pointers so that you don't. You don't just get hammered. Because that's. Given the lack of clarity in the space, which is. Pretty insane how little clarity there is the IRS is only issued guidance

on like five. Different things as it relates to crypto. They haven't issued guides on NFTs. They haven't issued guides on staking income. They haven't issued. Issued guides on so much stuff. What will happen is people are kind of just flying by the see the see the pants and they're just kind of. They're making bad decisions because of that. And I'm always happier to take five minutes

in an email going back and forth with someone to give them a little bit of a baseline versus they they do something drastically wrong. And then end up with not only a massive tax bill, but given the volatility in the space. They have a massive tax bill and they also sometimes don't even have the portfolio anymore to to pay the tax bill. Because they kept everything

in their crypto portfolio and the token they were investing in went down 90% or something crazy. Alright, I appreciate your transparency. And. You probably need to get pretty busy because there's just. I say there were about to go in the next bull run Bitcoin was up like 35% I believe last time I check. Don't call me on that but that's just what I've been seeing online.

Yeah. And I'm glad you brought up NFTs too because that leads to my next questions. Are NFTs taxed. Yeah, so NFTs again the IRS has an issue specific guidance on it, but I think NFTs are going to be one of the most heavily litigated. In crypto over the next decade or so just because the very the few other CPAs and tax professionals who are in this

space. The only thing people say is that NFTs are probably should be taxed as collectibles the same way you would. Baseball cards or something something like that something that doesn't really produce it's not a utility asset. It's not producing income or something but. You're holding it for its rarity and hoping that it goes up and value. And for a lot of NFTs especially like the the

one NFTs like a crypto punk or something like that. A profile picture NFT isn't really providing any utility. It's not for it's not creating anything it's not creating value. You're just holding it because you're hoping that the price will go up. So for those kind of NFTs then being taxed as collectibles when you sell them is. Pretty solid guidance. But NFTs can kind of be whatever

whatever you want them to be. I'm in the example I'll give is I'm in a discord server that's on on NFT trading and the way you get access to the server is by whole is by buying and holding. An NFT and then they'll use one of these verify bots to make sure that you hold the NFT in your wall that's how you get access to the

server. But the membership is only. It expires at the end of 2023. So even though I'm buying like an air quotes NFT and I'm buying again air quotes at an asset. Really I'm just buying a subscription. I'm buying a membership to something with a very finite life. So. Treating that as the same the same way as you would a board a per crypto punk doesn't really

make sense. So you've got that component. Then you've got utility NFTs. You've got a lot of other either tokenized assets or that you're using in the metaverse or like play to earn games like a game and I'll always use the example. Let's say you're playing like a world of you're playing a play to earn crypto game. And it's a world of warcraft type rip off. And

in the game you've got a building you can buy like you run a tavern out of you've got a sword that degrades over time you've got a pickaxe that degrades over time you've got. A piece of digital art that you that you hang in your house you've got a piece of land that you can build on. Well, if those were the real world equivalents all of

those would be taxed very very differently right. The land is going to be taxed differently than you would the the axe. So I think what is going to happen is when the IRS does catch up and issue some guidance. They're probably going to issue some very conservative guidance that doesn't really allow you to fully expense and appreciate those assets quickly. They're going to try and make

you spread it out over really long long amount of time. I think people and people are going to sue and say yeah I know that I bought it's an asset. But look at how I'm actually using it. Look at the look at the use case of how this is being utilized. And I think there's going to be a wide array of how people are trying to

tax this. And I think it's I don't think it's going to get legislated. I think it's going to get battled in the courts more than anything else. Oh, all right. All right. I like it. I like it. Now does crypto qualify for 1031 exchanges. Unfortunately not. So when they passed the tax reform in 2017 that tax tax cuts and jobs act. This was right after the

the ICO the initial coin offering craze that that happened in 2017 where before that we basically had Bitcoin Lite coin in a theory. And that's when everyone started making their own tokens. And kind of similar to what we saw in 2021 2022. Yet a lot of people who made a ton of money. And then the market crashed. So when they were doing tax reform at that

same time, they realized people were going to want to take 1031 exchanges to defer the taxes that they were making on all this trading income. And the IRS said or not even the IRS. This was Congress at that point said very explicitly 1031 exchanges are only for tangible assets. So only if you're it's a building a piece of equipment something like that. Not intangible assets like

NFTs crypto. Copy rights. Just IP type things all of that you're not allowed to do it. Okay. Okay. Now is pain with a crypto debit card or a crypto credit card taxable like say if I want to go to a store like for an example, I was in Miami about a month or two ago and the gas station was accepting Bitcoin. It's into pay my for

my fuel. Is that taxable? Right now it is. And that's one of the things that makes it well, I should say it is if you're doing it with a crypto debit card or actual crypto. Crypto credit cards are a little bit different. But the way that it's treated right now is that for federal tax purposes cryptocurrency is property. So when you're using your crypto debit card

and swiping it and spending 0.001 bit coins to pay for for your candy. So if you're using a crypto debit card or that is you technically disposing of an asset to buy something else. So you're supposed to report that on your tax return as a capital gain or capital loss. And that very easy pretty obviously creates some logistical nightmare is that because it doesn't matter if

you're just buying a cup of coffee every time you swipe that card that creates a new taxable event that you have to report. Now crypto debit cards are a little bit different because with a crypto credit cards because with a credit card you're not actually spending your crypto. You're just a crewing a liability which doesn't matter for the fact it only matters in tax accounting world.

But it's not you actually selling your asset. You're just taking on a loan every time you swipe that and then at the end you're paying it all. But disposing of your crypto doesn't really come into play. The crypto credit cards are pretty much just rewarding you with crypto instead of airline miles or points or cash back. But right now at least crypto debit cards every swipe

is a new taxable transaction. There's two things we mentioned on that. One is that there has been legislation that's been proposed where if I think it's the virtual currency fairness act or something along those lines. Where if your transaction is under $200 you're exempt from those reporting requirements and the tax on it. So four cases like what we talked about where you're going to talk about

or something you spend ten bucks. That makes it a lot easier and a lot less arduous to use your card. So hopefully some relief is coming. The other thing is that if you are using a crypto debit card in the meantime until that legislation gets passed. What will tell people to do is if you're holding any stable coins, probably just load it up with your stable

coins because even if you then have to report the transaction, it's going to be a wash because you're swiping it for a dollar and then your cost basis as a dollar. You're not you're not going to have a gain or a loss that you have you really have to report on that. So at least makes the bookkeeping aspect a lot easier. So save your seats ladies

and gentlemen. Save everything. So how are you guys staying acclimated to the chain with changing of regulations and new laws? We've had to largely we've had to get new some hefty subscriptions to the to the changing landscape because we found that if we're just trying to rely on sort of the the accounting rags or just the the news bulletins that we're going to have to do.

But we typically would they're not crypto focused enough. So the news we would be getting would be days, weeks, months later than the court cases happened. So that's been that that's been the main thing that we've had to do aside from just being in in the space and trying to stay acclimated. In what's happening within the general market itself. That's been the main thing we've we've

had to do is just pay quite a lot for these things. And we've had to do a lot of the new new subscriptions to we would have gotten the news eventually but trying to stay up to date on it. The only way to do it is to pay for these sort of specialized. Subscriptions that that focus specifically on it. And I'm sure I could share it's

well worth it. So you always pay. You have to I mean if you're going to. So you can't rely on your your colleagues to you there's there's another CPA in town that you can call and bring up and ask for advice. There's just not many people around. So if you're going to claim to be an expert and really be in the space. You can't be two

months behind on the legislative landscape. You've got to you've got to be very very attuned to it. So at this point that's really the only option to stay up to date. They truly up to date. Have you heard of a government blockchain association. I haven't. Is that one of these like state state sponsored ones or. No, it's actually this organization up in Washington DC and they

they do talk a lot about money governance and law and they actually do have an event coming up in May 23rd through the 25th. I don't I'm not sure you don't quote me on it. But the. Yeah. So I think to it is. GBA dot org. And I. Hey man, I'm going to be there and I hope to see you there. If you decide to go

out and give a presentation about your company and I'm sure they'll love to have you is that we. You could connect with more like minded people that are in the space and are that have the same concerns that are starting the business and it's a good way to collaborate and about ideas off each other. Yeah. So hey man, is there anything you want to. We didn't

cover that we want to touch base on before we sign off. I mean, it really depends on what the listeners are doing because any bucket of crypto week. If. You can dive about as deep as you want to and we can have multiple discussions on one little little subset of crypto. So not specifically the biggest thing that will tell people to do that do think is

it's pretty obvious advice, but it's also. One that we found very, very few crypto investors are doing is making sure that as you have realized income be that staking income receive note income, you're making trades on your crypto anything that's generating a taxable of an taxable income. Making sure you're cashing out and setting enough aside just to cover the tax bill. Because we've seen some horror

stories of people who weren't doing that. And especially during the bull run. No, but he wants to know, no one wants to lose out to the market exposure. So no one wants to cash out. So it's just going to go up and up and up. And that's fine. If you're hodling. If you're just sitting there and you're not generating a tax bill. Fine. Do whatever you

want. Crypto investors are very aren't aren't particularly risk averse. I've got a great risk tolerance. So they don't mind losing their money. That's fine. So long as you don't have a six figure tax bill that then you're having to pay. And then and the project you're investing in crashes. Or even if you're in Bitcoin or Ether or something and it goes down 50% in one year.

So as you're as you're generating tax at least cash out enough to to cover that. And make sure you're saying that money aside in an actual US dollars and an FDIC and shared bank account. Not unstable coins because that's the other thing a lot of people were doing where they're they're cashing everything out for a stable coin. But they were putting it in a net. And

USD so they could earn 20% interest a year or or even if they're keeping it in a legit stable coin like USDC. But they were holding it on Celsius or Voyager or block fire something. So given all of the insolvency we're seeing in all these exchange failures and some token failures. Just make sure that you're setting enough beside to cover your tax bill. Otherwise what you

end up what ends up happening is you might just not have enough money to pay your tax bill regardless. But it could be that you have to liquidate a huge portion of your portfolio to pay the tax bill depending on how how much the market goes down. And exactly what your holdings were. So we've seen people to where they they earned a million dollars. But they

end up having to liquidate pretty much all of it just to cover the taxes. So it's one of the one of the very basic things you can do where it's sort of an announcement prevention or best with your end divers. And thanks again for taking the time. I know you're a busy guy and it's tax season right now. I'm pretty sure you're pulling out your hair.

Yeah. So are already gone. For those who are listening. And yeah, do take it easy man. All right, appreciate it. Thanks, bye. Have a good one. Did you know that podcasts are a great way to grow your personal and business brand voice? Here's a street crit. We all want to feel connected to brands we buy from. What a better way to humanize a brand than through

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