Hey everyone. Welcome to The Poolside Web3 Builders Podcast where we come together to share knowledge and experiences with the community in an informal and conversational way. Thank you all for joining us. My name is Cate, I'm your host, and today we have with us Shane Brunette, founder and CEO of CryptoTaxCalculator. For those who don't know, crypto CryptoTaxCalculator is a crypto tax software solution designed to automate your crypto tax nightmare, saving the pain of manually calculating taxes for each of your transactions. As you might already know, the Poolside podcast episodes are recorded live on Twitter spaces, but if you've missed any, you can always find us on Spotify, Apple and Google podcasts. So subscribe today.
Welcome, Shane. Thanks for having me. Okay, so first of all, could you please introduce yourself? What is your background? How did you get into the Web3 space?
Yeah, definitely,I’m Shane I’ve been building a CryptoTaxCalculator since 2018, background as a software engineer was really initially actually building a decentralized Exchange, which was meant to be regulatory compliant. But I ran into issues back then, with managing securities on the blockchain, etc, was just too early for the idea. But still wanted to add value to the space and had been doing a lot of complex on-chain activities myself and had a real tax nightmare. And kind of from talking to some of my friends and peers, realized that it was a serious issue that people were really stressed about doing their taxes, particularly when they started doing anything complex. And that was back in 2018. I think that problem still rings true for a lot of people, taxes can be quite disturbing. And so once you start getting deep into crypto and try to work out how to do your taxes properly, it can be really stressful. There's a lot of people who I talked to who just, you know, end up waking up early in the morning in a dry sweat when they start to realize exactly how much work’s on their hands to get their taxes sorted. And that is essentially what we're out to solve for is if you're actually trading in Web3, you know, any complex defi NFT activity and that type of thing. Then how do you actually go about doing your taxes? And that's where CryptoTaxCalculator comes in.
So you founded CryptoTaxCalculator in 2018, with your brother, Tim. But how did the idea come to life? What is it about your product that makes it different?
Yeah, the big thing for us is just focusing on on-chain activities. So actually, interfacing with all these different blockchains. And the complexity that comes with that. For a lot of other players in our category, they're more focused on centralized exchange activity, etc. Where I'd say still, the majority of the markets trading activity does occur. But as soon as you transition to doing anything on-chain, it just adds a whole new level of complexity for when you're actually trying to do your taxes. Because just the data that you're dealing with, a lot more difficult to work with. And you've actually got to pull that data directly from the blockchain. You know, it's in a format that's designed more for computers, not for an accountant. And what we do is transform that data into an accountant friendly view, I'd say, which you can then use and share that with your CPA, or you can also export that data into TurboTax. And essentially, manage it yourself. But um, yeah, that's the big difference is just being able to actually handle the complexity in the Web3 space. Not many, no one's really doing a good job with that.
So at the present moment, how is crypto tax in most countries? And I'm talking also about NFT's and airdrops.
Yeah. So it does head on the jurisdiction. There's also some gray areas depending on what you're doing. But generally speaking, there's really two concepts in tax, there's income tax, and this capital gains tax when it comes to crypto. And buying and selling crypto would trigger a capital gains tax in most countries, whereas if you receive something like an airdrop, or some sort of reward, like an in-game reward, etc, that can be classified as income. And that can have an impact for how you actually manage the risk. For example, in a lot of jurisdictions, you can't offset capital losses against earned income. So if you were to receive, say, $100,000 of staking reward, and those assets then went to zero, you couldn't offset the capital loss against the $100,000 income that you received from the staking reward. So there's some ways of really getting caught when it comes to taxes in crypto. And we deal with these types of customers all the time where they end up, essentially getting wiped out, because they didn't realize what their tax obligations were. And if they have just been aware of it a little bit earlier, they would have been able to avoid this situation completely by making a couple of different transactions prior to the end of the financial year. So we've got quite a few different guides, which are kind of start points depending on your country and where you're from. But yeah, there's certainly quite a bit of complexity, depending on your jurisdiction. But just something to keep in mind is just the differences between capital gains and income, and whether what you're doing is actually, if you can offset that activity with other losses, etc. Yeah, there's a lot to think about there.
And you're working as a global company. What are your main challenges when dealing with those different tax jurisdictions? How do you prepare for it?
Yeah, so depending on your jurisdiction, when you sign up to the platform, you can select your country, and then we will have some sane defaults. There's actually, like, from a calculation perspective, which is what we focus on, the rules aren't really that complex, there's only so many different ways of slicing the apple so to speak. And when there's any particular gray rule within your jurisdiction, you can take a stand, depending on what you decide is the best outcome for yourself. A good example of this might be adding liquidity into a liquidity pool. There's not really clear guidance in a lot of jurisdictions as to whether that's a taxable event, or just a deposit for tax purposes. And there's fairly good legal arguments for both cases, and it's still needs to be really probably determined in a court system to actually find out what the actual answer is, and that's in every single jurisdiction and probably to go through that process, unless the tax authority puts out some clear guidelines, but we've worked with quite a few different tax authorities. And there's still a lot of internal debates, etc, about that. So in the settings, you could decide, okay, well, all of these transactions that are adding liquidity, you could decide whether you want to treat it as a deposit for tax purposes, or a disposal for tax purposes. And then you could see the tax impact of that. And you can read up on what the tax authorities are suggesting and talk to your tax professional and essentially, decide for yourself what the best option is in an area, which is particularly Gray, for example. So there's certain transactions which aren't Gray, it's pretty black and white, what the tax outcome is. And we can obviously decide that and set that for you. But for transactions, which are in this gray area, we kind of put you back in control, because it's not actually clear what the answer is.
Yeah. And why should it be important for those crypto users and business owners to be tax compliant? I think we all know the answer. But from your perspective,
yeah, I mean, this is actually an interesting question that comes up a lot more than what you think. I think for a lot of people, they might think that look, you know, it's crypto tax, it's extremely complex. Even I can't work it out. How is the government going to be able to work it out? They'll never know. They don't even have my details. It's just not a blockchain. Yeah. But my public wallet address, you know, They can't find my identity, they're not that smart, they don't have the technical chops, then I'm going to find out essentially, you know, especially so if I can't even work out what the tax is. And the truth of the matter is that it's actually a very different system, when it comes to taxes to other parts of the legal system. When it comes to the taxes, the burden, the burden of proof is back on the individual. It's not really, you know, usually, the burden of proof lies with the prosecutor, depending on your country. Whereas in this case, the burden of proof really relies on the defendant in a lot of ways where it's up to you to be able to prove that you've done the calculations correctly, and that you have gone to best efforts to do this. And that puts a lot of pressure on the individual to get it right. And really a lot of benefits to the tax authority to question it. And whether as to not whether they will be able to find out who you are in the first place. So just something about blockchain data is that it's all open, public, accessible, and immutable. It's not going anywhere, anytime soon. So it's essentially like having every transaction written in stone, and putting it outside of the tax office. And so they can come and have a look at it at any point in time in the future. And all the activity links up, you can see a full trail all the way back to the exchange. They go through processes of subpoenaing putting a subpoena to the exchange to get that KYC information. There's plenty of private companies out there, which are more traditionally focused on KYC AML Compliance. But they're they're basically in the game of tracking identity of people on the blockchain, they've got all types of techniques to do it and isolate it, they typically use it for criminals. But these tax authorities are also engaging with them for civil audits, essentially. And, I mean, when it comes to tax fraud, the statute of limitation doesn't apply like that, they've got a lot longer to follow up. So just in terms of, and the other thing is that the tax office deals with complex tax fraud all the time, like, they're very familiar with it. And you've got to be extremely sophisticated to get away with tax fraud at the best of times, and doing it on the blockchain. And then thinking after the fact, don't ever catch ,me that's a very unsophisticated attempt of getting away with tax fraud. So I just think twice before you, before you go down that path and realize that actually, everything is fully traceable. And that also, the burden is up to you to try to work out what the calculations are, and worked with your tax professional to do that. And it's actually very easy for them to analyze, and work out if there's any missing data, if the transactions aren't making sense, if there's gaps in the data. And if there is any of that type of stuff going on. That raises a lot of red flags. A full tax audit is extremely painful. So it's just, yeah, something to be on top of.
Yeah, and you were mentioning, sometimes the lack of clarity in terms of regulation of how those taxes should be should be done. So the crypto sector has been calling for more regulatory clarity for quite some time. And this is a relatively new and quick, quickly evolving space, bringing challenges for regulators to balance innovation, fostering and consumer protection. So what role do you think regulation will play in this space? And more specifically, how do you as a company position yourself?
Yeah, I think there's been a lot of attention from regulators around getting access to transaction history from centralized exchanges. We've got in the US the 1099 Da, which is a digital asset form. So literally like a government form that's going to be enacted or probably the end implemented over the next year. So that's probably where the regulatory action is focused on is just getting access to all of this data at this point in time. The other side of it is just offering more guidance. There are still a few gray areas in crypto and obviously, you know, developers are able to come up with interesting and complex new transactions, I suppose which don't necessarily map back to the real world or if they do, it's fairly new. It's not a very clear map back to the real world. And so in this type of gray area, you know, for individuals to be operating this gray area can create a lot of uncertainty from a tax perspective. So just giving some more clear outlines from tax authorities to individuals as to what some of these tax implications might be such as you know, what happens if I add liquidity? Like what's the actual outcome of that, we are seeing more attention in this space where regulators are spending more time consulting with industry to try to come up with rules that do make at least some sense, given what your intentions are behind that transaction.
And do you think this broader cryptographic regulation is something that will help with Blockchain mass adoption? Or will it slow it down?
I definitely think it could help. There's a lot of work that could be done from the developer side as well, to make it easier to access some of this data. We were obviously with a lot of individuals. And typically, the journey is that you'll go out, you'll get interested in crypto, you'll move from a centralized exchange into, you know, doing some on-chain activity. And then you'll catch the bars, you'll do like 2000, transactions, just experimenting, the space just exploring what you could do, etc, etc. And then at some point, it dawns on you that you have to do your crypto tax, and then you realize exactly how painful it is when you start to do it. And then at some point, you kind of get to the point where you go, Okay. I'm just never gonna do anything like this ever again, because it's just so hard from a tax perspective. And while it's like, why would I ever do this, and so that's actually really bad, I suppose post sales experience of being engaged in the crypto space is that the tax burden and just being compliant is so high, that you kind of get turned off, if you're just, you know, it just turns into a nightmare. And you never want to do it again. So being able to make that a whole lot easier, like that's where I think it's really important for services like ourselves to come in and actually offer real value there where it shouldn't be that painful, it should be as easy as putting in your public wallet address, you accept a few of the suggestions, it's all pretty automated. And then you're able to generate these reports. For any gray areas, you could talk to your tax professional, but essentially getting the records in order. And getting to an actual number should be all pretty straightforward. That's what we've been working on.
And on the side of governments, what do you think that still needs to be done? For this crypto tax accounting to achieve mass adoption?
I think just maybe awareness as well, like there's still a lot of users out there, which we talked to who just aren't even aware of their crypto tax obligations. Like they're just like, oh, NFT trading, I have to pay tax on that. And then you can, you can watch their face kind of sink on the customer discovery call when they start to realize what they've done and what they have to do and what their possible liability is. So that's pretty shocking, like just how many people aren't even actually aware that they've got these obligations. So probably, one of the first things tax authorities could be doing is just focusing more time and attention on that awareness. That, you know, things like NFT's are also very well potentially taxable. You know, what's the obligations of airdrops and staking rewards and potential tax liability from that if they're considered income, rather than a capital gain. So just some awareness of the “got yous”, I suppose in the space.
And the traditional accounting gives enough support to crypto related service business owners
Getting better. When we started this four years ago, there were really only a few specialists around town who I would best describe as feeding off the industry, you know, just charging very high fees. For very specialist services. They're often in high demand with a very big backlog, and normal CPAs and accountants. They weren't too interested. They saw the space as too risky, too complex and something they didn't understand. I think that's changing a lot, especially in certain jurisdictions, like, for example, in Australia, they've got a lot more activity from accountants now we've talked to a lot of accounting bodies, as CPAs, etc. And just everyday CPAs work with h&r block, so you can walk down to your local tax office and get it done with h&r block. So that's as mainstream as it could be. We're starting to see that type of activity in the US as well as CPAs in the US more and more of them coming into the space and trying to help clients. So it is changing, it's just a matter of time, I'd say before, before that's just a lot more accessible.
And how do you see things changing in the in the next year or two,
I think in the next year or two, we're going to see a lot more activity from the tax office when it comes to enforcement and compliance. In the US, so far, they've only really been chasing criminal cases. So prosecuting from a criminal perspective, hasn't really gone too hard on civil audits yet. But that's changing where we're aware of that, like internal activity that's changing here. And the other things just access to data, they've passed a bunch of legislation to get more access to data, make that much more streamlined. So I think that's going to be the biggest change over the last couple of years. Over the next two years, like the last few years, the tax office has been more focused on education, and trying to raise awareness amongst individuals. And that's typically a strategy that they will do. When there's some new kind of Tax Scenario, like this happens in other areas as well, it's not just crypto, this is just the general playbook for the first few years is to educate the market. And then after that, bring out the sticks, so to speak, and prosecute the market. And that's how you can drive compliance. But they've tried to make it fair by educating first, but I think we're transitioning away from that first stage into compliance. And that will happen over the next couple of years.
So a question that is not related to taxes anymore. You've been working in the Web3 space for quite a while. What's what's exciting, new, more at this moment in Web3,
quite, very excited about, I suppose like securities on the blockchain, I think that's actually a very innovative space. And there's a lot of opportunity there. And accessibility, you know, creating secondary markets for interesting startups. This was actually where I started off in my crypto journey. And I think there's more like if we can get more certainty around some of these compliance issues. I think there's some real efficiencies to be gained from having securities and secondary markets and accessibility for everyday users to contribute to these types of capital markets on the blockchain. And yeah, that's, that's probably the area of interest for myself that I'm most interested in.
Right. Thank you, Shane. This will be the end of our Poolside session. So thank you, everyone, for tuning in. And thank you, Shane, for joining us. And for your very useful insights. I went to check your LinkedIn bio, and I saw you have on your “about me” solving hard problems with software. And I think the CryptoTaxCalculator really matches this phrase, do you want to address anything related with CryptoTaxCalculator that we haven't touched upon?
Just I would say it's for any listeners, if you are listening to this and you're starting to realize that maybe you do have some crypto tax obligations that you need to declare, don't stress, don't get overwhelmed. It's not as hard as what you might imagine. It's just the most important point is to get started and get over that state of inertia. And you can obviously access our platform CryptoTaxCalculator.io and we can help you out with that especially if you've done anything complex on-chain you know any any NFT trading anything with Polkastarter or just anything at all have a reach out we've got support there as well. So
yeah, it will be okay, that's it. Don't stress. So if you have any topic or guests you would love to hear on the Poolside podcast drop us a comment on Twitter with your suggestion and use hashtag #Poolsidepodcasts. In case you missed this entire live session, make sure to subscribe on Spotify, Apple or Google podcasts and listen to this one and many other insightful episodes. I will see you next week. Thank you Shane.
Thanks so much for listening. Bye bye