BITCOIN ETF TROUBLES: THE HODL TAX. WHAT IT MEANS FOR YOU!

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The hotal tax is another reason to self- custody your Bitcoin I wasn’t aware of this so I brought in everyone’s favorite crypto CPA shean Chandra Sakara to the show to explain so shean welcome back yeah great to be here again before we get into that can you just give us a

Quick refresher so everybody knows first of all I’m gonna ask you this what is a taxable event what’s the difference between short and long-term capital capital gains and then also there’s one called a net investment income tax so just real quick Shan could you just kind

Of go through like what is an actual taxable event in crypto so people know yeah so in in general for crypto um there are five tax events uh by the way this has nothing to do with the ETF this is just general crypto uh so number one

Just cashing out you know pretty s expend you had Bitcoin you sold it for a profit for cash you had to pay taxes sure uh number two when you exchange one coin or nftd with another coin or nftd uh the IRS does not car if you receive

Cash or not you still have to pay taxes if that first coin has appreciated in value at the time you’re exchanging it to the the next coin okay uh number three when you spend cryptocurrency or even nfds to buy goods and services that triggers a taxable event um number four

Is when you earn cryptocurrencies you know you can earn cryptocurrencies through like you know mining um staking um employment income etc those are taxable uh the last one is crypto specific events like sometimes you get new coins as a result of an air drop or a hard folk and and those coins are

Taxed at the time you receive them based on the fair market value so those are the five taxable EVS gotcha okay so that is just the basics of Basics let’s talk about short and long-term capital gains because you put this up and of course people look at this and like what is

This do I have to pay this much taxes so just real quick difference between short and longterm and what are the brackets here in the United States now for of course we can’t cover all the different countries that are out there but this is a general term

And this is just for the US yeah so at a high level uh what determines whether something is short-term or long term is the holding period in simple terms that means how much you’re keeping an ETF share or or a coin or or a stock so if

You were to buy something and sell after holding it for less than 12 months the resulting profit results in what’s called short-term capital gains and those gains are subject to these tax rates based on your filing status and U and the income levels so let’s say for example um you made

$50,000 worth of short-term capital gains so so you got to kind of follow the chart so 50,000 kind of uh in that third row so that 50,000 is going to be subject to assuming you’re a single father that’s going to be subject to 22%

Uh tax rate um so that’s kind of how how it works gotcha so like from like from if I make 50,000 not bad uh so this is a progressive tax right so from 0 to 11,000 I’m paying x amount correct 11,000 44,000 I’m paying 12 and 44 I’m

Paying 22 it’s not like when I get to 44,000 I’m immediately paying 22% so I know some people sometimes have that question but we have a progressive tax now let’s yeah so just to just to just to clarify so so the the 22% uh ratees going to be applied to whatever the

Difference between 50,000 minus 44725 exactly yeah gotcha gotcha gotcha good clarification so that would be the uh shortterm let’s talk about long-term yeah so the long-term uh capital gains apply when you sell something for a profit after holding it for more than 12 months um so there are three tax rates

Uh for these profits to be subject to uh 0% 15% and 20% uh by the way a lot of people are not aware of this 0% you know tax rate and um it’s something that you can use if you kind of need the qualifications uh let’s do like another

Example here so uh let’s say uh $50,000 like in our previous example in this case it’s a long-term capital gain um in in this scenario that entire 50,000 is going to be subject to a a flat 15% tax rate um because because these rates are kind of a little bit different compared

To the the previous chart um and and by the way so so the in order for you to get the z% rate like your entire taxable income for the year has to be less than like 44625 you’re like a single person so let’s say for example you had one

Year all you had was like you know $40,000 worth of long-term Bitcoin stock or ETF gains that’s going to be subject to z% tax rate meaning you don’t have to pay any taxes thank God for Small Wonders only 40,000 to live on yeah yeah only 40,000 to live on but if you really

Think about it that’s probably equivalent to a 60 $65,000 uh W2 income right because because you’re not paying taxes like if you like if you have like a 62,000 65,000 W2 job your actual cash inflow is probably going to be somewhere around 40 to 45,000 uh like that’s actually what

Hitting your bank account so that is very true I could I could be okay you know living around $ 3,700 $4,000 a month just going from there I mean of course it be 48,000 but yeah let’s just say 35 I could do that so there’s that

Piece now let’s talk about the niit the net investment income tax what exactly is this year yeah so so we spoke about uh short-term capital gains and long-term capital gains yeah and in any given year if you’re uh total income but as a matter of fact it’s called the

Modified gross adjusted income M exceeds um any of these thresholds you had to pay an additional 3.8% tax on top of your capital gain tax so going with our example before so you had $50,000 worth of you know could be shortterm or longterm uh but for the entire year you

Made like you know half million dollars because you’re highet with individuals and that half million dollar could come from wages or business income or whatever so in that case that 50,000 is uh is subject to their shortterm long-term capital gain taxes we spoke about plus this additional 3.8% tax ah

Fun times good love taxes so now that’ll leave us to our last point which is one that I had a question on which was these fund expenses because this is all from the Bitcoin ETF and the different institutions that are offering those Services the black rocks and the

Fidelities and things like that there is a a fund expense so could you kind of walk us through this because that’s for the people who right now are going okay I’m just going to do a Bitcoin ETF but I haven’t sold anything so how does this

Work for fund expenses yeah so this is somewhat unique thing to sport ETFs because these ETFs are structured as gr tur trust um so obviously like sponsors like you know Arc and you know Fidelity they need to have money to kind of run their fund right they had to pay the

Salaries and Etc right in order to do that they have to dispose of like Bitcoins throughout the year to to kind of come up with the cash inflow so whenever they do that that results in a capital gain or loss event for the shareholders because whenever you spend something like Bitcoin there’s a

Difference between how much you paid for it and and the market value so if there’s a profit um there’s a gain at the fund level and as ETF shareholder you had to report that gain based on your PR share of the fund that you own but the trick here is that you had

Report that gain but the fund is not giving you the cash they’re not Distributing that yeah so I like to kind of call this like a hling tax because generally speaking like you know holding holding is completely taxfree like if you’re holding you know Bitcoin even

Like any stock right right uh but if you’re holding a spot Bitcoin ETF fund you had to keep you had to pay this tax um that’s kind of something for you guys to know about that’s crazy that’s crazy so everybody so if you’re new to the game and then you’re like you’re saying

Yourself that uh that a you know an ETF could be very safe of course you offload some of those restrictions and and the things that you have to do as far as what you’re holding on to it that is true but just like xen said and I’ve

Never heard of this until right now there is a hling tax that is probably what I will use in the description and the title for this actual video so xan that’s interesting stuff and yet another reason why I think people should learn how to self- custody in cold storage devices but

That’s another video so Shan before we take off any last words of wisdom for the people out there getting into the space right now um I think the the spot Bitcoin ETF like there are like you know legit use cases for using something like that especially if you want to buy uh if

You want to have exposure to crypto in a 401k seta or have have an account uh the the spot Bitcoin ETF is a really good way to do go about that uh but if you’re kind of want to kind of hold Bitcoin for the long run the cheapest way for you to

Do is is is self custody assuming you don’t you know lose any seat PR and stuff like that or you don’t compromise your SE PR to a hacker this is very true there’s always the pros and the cons so Shan thank you so much all right everybody so look if you like today’s

Video give it a thumbs up consider subscribing if you want to follow shean there’s information be below in the description that’s it for today so everybody thanks so much for stopping by hope this helped and we’ll see you in the next one thanks guys