Bitcoin Investing In An Idea – For BEGINNERS (NEW for 2019)

– Hello everyone, my
name is Carl Zoellner. I’m one of the attorneys
with Anderson Advisors, and today we are going to
be talking about Bitcoin. Titled presentation is
BitCoin, Investing in an Idea. We’re still on the frontier
of this type of investment, so we wanted to get some information out to our existing clients
and potential new clients on how bitcoin works,
how the IRS treats it, and things along those lines. So in this presentation we want to know, we’re going to teach you
how the IRS treats bitcoin, tax implications of buying
and selling bitcoin, and how to protect your bitcoin
from predatory plaintiffs. Some definitions starting
out, for those of you who may not be as familiar with bitcoin is block chain, which
is the digital ledger that the public uses, and it keeps track of the transactions in
chronological order. Some folks are even involved
in what’s called bitcoin mining which is by servicing the block chain you receive bitcoin as payment. A public key, which is one
of the keys used in bitcoin, used to ensure that you are the owner of an address that can receive funds. And the private key, which is used in conjunction with the public key to access the funds in
your bitcoin wallet. And your wallet’s where all the details of your bitcoin transactions
and accounts are saved. Now, starting out this,
I want to do a little bit of trivia or some fun facts for you. One of the questions
that gets asked the most, especially for those who
haven’t been investing in bitcoin already, is who is in charge of the internal workings of bitcoin? Quick answer, everyone
and no one. (laughs) Folks are all involved in the mining, help maintain the blockchain,
but one of the main tenets behind bitcoin is that it’s a
decentralized form of money. So everybody helps and pitches in with the blockchain
maintenance, but ultimately there’s not one central
figure that regulates it. There’s also, preached
when it was released, that only 21 million bitcoins
will ever be generated. This is one of those questions that comes up from time to time, especially in the times when
bitcoin becomes more popular, and it’s that how can there
ever only by 21 million, they have to be generating
more at some point? Well the answer to that
is also just as confusing. It is, there may be more, there
may not be, it just depends. The bitcoin was invented by a person or persons named Satoshi Nakamoto towards the end of the
2000s, and nobody knows who that person or persons are. Many people have speculated,
there’s always speculation on if it’s a group of
people, there’s even rumors it’s Elon Musk, we don’t know. But the ultimate answer, number two, is for 21 million, are
they going to create more? We don’t know because we
technically don’t know who created them or what
kind of path you would have to go through if say, the
creator is now passed. We don’t know cause we
don’t know who they are. So next question is, okay,
we have a public key. Public can see that. What happens if I lose my private key? Well, short answer to
that is you’re screwed. You got to keep control of the private key because you’re the only one who knows it. There are lots of storage options as far as you can keep your
private key in a digital wallet. You can also, they have
cold storage options, meaning you could have a piece of paper in a vault somewhere
with your private key. But there have been numerous cases of people losing that private key and losing all access to their bitcoin. Not to tell stories out of school, but we have a colleague here at Anderson who built up quite a bank of bitcoin when it first came out by
doing some mining for bitcoin, and it rang up to the tune of about, when it went up to 19,000
there about a year ago, where he had about a few million dollars sitting in bitcoin and
had lost private key. Now in that circumstance,
luckily he found it and was able to recapture that and be able to get
control over his account, but in the scenario where he didn’t, there would just be dormant
bitcoins sitting out there in cyberspace waiting to be collected. Last question is a little bit rarer, but interesting nonetheless in that does the US government own bitcoin? The answer is yes, they do. Through seizures and other legal means, the government owns at last
count over 274,000 bitcoins. That’s a lot of bitcoins. It is one of the largest single owner of bitcoins in the world, so. Now on to the next. Mr. Wonderful, Kevin
O’Leary, puts into good words why it’s so difficult
to use or judge bitcoin. I’ll read the quote for you as well, “The fact is, it is so unstable, “volatility is both directions. “It’s up, it’s down, that nobody “in a substantive transaction
will take that risk.” So what he’s saying is, for
those who are wondering, is how do you conduct business when you don’t know the
value of your bitcoin? A year ago and some change,
it was $19,000 a coin. Today or this month, it’s
in the three, $4,000 level. Now if I’d written a contract
to purchase a building, purchase a house, purchase something worth a substantial amount of money, and I was the one with
the bitcoin and spent it, I’d be riding high cause my
bitcoins weren’t worth much. But the person who sold it to
me would be sorely, (laughs) would be hurting in the
fact that if they originally took my coins to purchase that property, they would now be worth,
what, less than a quarter of what they were worth a year ago. So that’s what Mr.
Wonderful’s talking about, and that’s why this area of
investing is so speculative because it’s hard to track down a price or a consistent level. Now where are we headed with bitcoin? So we know there’s some volatility issues, but where are we going? I mean, we’ve all heard the
first story with bitcoin was, somebody first bought a
pizza, the first transaction with bitcoin was somebody bought a pizza for three hundred bitcoins
back when it first started. Pretty cool, although
I’m sure at this point they probably wish they held on to them. But interesting stories abound. People have started trade
bitcoin like stocks. You can trade it 24 hours a day, has market volatility,
it goes up, it goes down, but what are the implications of that? Mining operations have become, so for bitcoin, mining where
you’re actually servicing that blockchain and earning
bitcoins while you do that, have become much less popular, and the big kids are starting to push the little kids off the playground. Problem being is the
cost of mining bitcoins has gotten so expensive
now between utilities and everything else that you
can actually be losing money while you’re earning bitcoins. So it’s important to do your calculations. The folks that are really
making money at it now are usually using warehouses
in remote locations where they can get utilities for cheap and they’re using little mining bots, or little contraptions,
that’ll mine for them and have several of them strung together. Wider mainstream acceptance
of bitcoin in the marketplace. We are starting to see more bitcoin ATMs and things along those
lines, but until it becomes easily acceptable and easily
usable in the marketplace, that fluctuation is
still going to continue simply because there’s a
limited amount of people using it, so small bits of
news, small bits of information or legal regulation, can shift it almost universally over night. And that’s why we seen
such sweeping changes and dives over the last few months. So regulations in the new frontier. This is a new frontier. Yes, bitcoin’s been out for a while, but compared to other
investment opportunities, it’s still highly unregulated as well as, new regulations are coming out daily because it’s unregulated,
well monthly let’s say. So in the new frontier, there’s
lack of guidance or law. Bitcoin is property, not currency. I know it almost a misnomer when you see the word coin in it,
we all think currency. But the IRS says we’re to
treat it like property, and that’s how we’re taxed. There’s a lot of changes to come. For example, one of the states that we love to use the most, Wyoming. Wyoming used to be one of the
least friendly bitcoin states and has now become one of the
most friendly bitcoin states simply by a couple changes
to their banking regulations. Ultimate goal here folks,
same as everything else we do here at Anderson, you do
not want to be the test case. Might as well pay your fair
share of taxes and move on versus being the test
case or being held out as an example to others of what not to do. So this next slide is, IRS as I mentioned treats bitcoin as property,
so how is property taxed? If you hold property for more than a year, you normally get long
term capital gains rates. So if you take a look at this, you can find where you end up on there, but zero, 15, or 20 are your options. And I’m going to get to
the punchline quick here, long term capital gains
rates if you have a choice are taxed much better than short term capital gain rates, which we’ll see here. And short term capital gains just means at your normal tax bracket, OK? So we mentioned the IRS treats bitcoin as property, and less than one year, if you hold your bitcoin,
is short term capital gains, more than one year,
long term capital gains. So in a perfect world,
we’d all hold our bitcoin for more than a year and do it at long term capital gains rates. Problem becomes with
such market volatility how do you guarantee you can
hold on to it for a year? Maybe you bought it at three or 4,000, and it was a couple years ago, and you hit that 19,000, and
you want to get rid of it before you get back to present
day $3,000, around there. Well then, that’s fine,
just realize that you need to report that gain as
short term capital gain. The other issue run into
is a mixed gain portfolio, like stocks. So you bought some bitcoin at some point, sold a little bit of it
off, held on to some of it. There’s lots of calculators out there, there’s software where you can use to determine how much of your portfolio short term gain versus long term gain. Ultimately though at
this point in bitcoin, if you’re reporting
and paying taxes on it, you’re way ahead of the game. So I would suggest if you
have a mixed portfolio you use one of the
calculators to determine what’s short and long term, but ultimately if there’s a couple mistakes in there, not the biggest deal in the world. Like I said, you’re still ahead
of 99% of the other people out there with bitcoin who
don’t know how it’s taxed and are running around
like they just robbed the Wells’ Fargo wagon
through the wild west. So pay your taxes. Now the one interesting piece, or one of the interesting pieces, in bitcoin is if you are mining bitcoin, you are also subject to the
15.3% self-employment tax because it’s classified as active income because the act of mining
generates that percentage. So be aware if you’re bitcoin mining, if you’re cloud mining,
that type of income is subject to that 15.3%
self-employment tax. Asset protection. Just like any other type of property, bitcoin can be taken
from you in a lawsuit. This is one of the things that is touted all over the internet that
is extremely annoying. It can be taken from you. I just told you in the beginning that the United States has a ton of it, so they had to have got it somehow, and my guess is Alan Greenspan at the time was not investing in it. So it can be taken from you,
and if a judge order you to give it up and you do not
give him your private key, then you get to spend some time in an orange jumpsuit behind bars thinking about your contempt of court. So do not be fooled, it
may be a more private way to hold money, but it is
available to judgment creditors. And it can be attractive
to judgment creditors because it’ll viewed as
an appreciating asset in the long term. It’s almost exactly like
looking at a stock portfolio in that you can trade it, it’s property, short and long term gains,
and attorneys like to grab it. And more attorneys are starting
to look for those types of assets as well as they
grow with popularity. Now in the beginning,
the big kid was bitcoin, and it’s the most common one known so that’s why we talk about bitcoin, but since then is litecoin and ethereum and thousands of others
who’ve come to market and already failed. But people are looking,
they know it exists, it’s not some dark web investment anymore, so be aware of that as well. So a different couple
investment strategies. We at Anderson use a lot of these for the same type of, like we say, stock portfolios, things like this. The corporation involved
in an entity structure is the best way to deal with active income or short term capital gains. So in the idea that we
would have a Wyoming LLC for some anonymity since
all the transactions happen in the internet, and we’d
attach to a corporation. Now for long term
investment, you can hold it in a more passive entity
because long term capital gains are basically the best tax treatment you can get on these type of investments. So we would go to
Wyoming so that we do not have other investments
intermingling with our bitcoin in case something were to
happen in that other investment. And for those of you
that have come to some of our asset protection events, you’ll be familiar with
some of these strategies because of the way we talk about inside and outside liability,
and for those of you who haven’t come to one
of those events yet, you should stop by, it’s a good time. Now a bitcoin mining strategy. For those of you that have seen some of our videos on Airbnb, some of our presentations
from those three day events, you’re going to be familiar
with this strategy. So we know bitcoin mining
generates active income, and it has that 15.3% self-employment tax attached to it as well. So by leasing those servers
or those mining bots to yourself, which is a passive activity, you can move some of
that active income around and save some of that money from just mining directly in your own name. It’s important to have all
these small details involved if you’re doing mining,
so I’ll have a slide at the end which tells you
where you can get a hold of us, but really if you’re doing mining, you need to have an individual consult. And also if you’re just
buying and selling, you should have one so we can make sure you’re getting the best treatment you can cause we believe in paying
our fair share of taxes, but we don’t want to leave a tip. So portfolio placement, so
where does bitcoin belong if I’m real estate investor,
if I’m a stock trader, if I’m just involved in
other investments in general? It is still a speculative investment due to the volatility, due
to the inconsistencies, and due to the lack of central authority. Not a bad thing, just the reality. So lack of stability and measureables, you can invest in it, I invest in it, I like it, but I don’t rely on it, I’m not putting 90% of my worth
into it hoping for a rise. I take it with me like it’s my
gambling money at the casino. I hope it works out, it
could be cool if it did, and it rises, and I
think it will over time as it becomes more popular,
as there’s more uses for it. But you don’t want to leave
yourself out on a limb. This is your play around
money, this is your spec money. So things you don’t
mind risking or losing. So we talked about how
the IRS treats bitcoin, tax implications of buying
and selling bitcoin, how to protect your bitcoin
from predatory plaintiffs, as well as even where it
belongs in your portfolio. I would encourage all of your who listened or liked this video to give
Anderson Advisors a call, number’s on the screen,
or visit our website. And we’re happy to have
a consultation with you. And obviously we’re
always willing and happy to do a free wealth
planning blueprint with you where we sit down, we have a conversation, and we show you what you should have in place to work with in the future. Pleasure speaking all of you, and I look forward to
working with you, bye.

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