What Grinds My Gears: Death and Taxes

They say there are two certainties in life: death and taxes. And while we don’t get know of anyone who has managed to cheat death, we certainly know of people who have dodged their taxes. In this episode we unpack

  • The myth that cryptocurrency can help you evade taxes

  • Walk through the history of offshore accounts

  • Discuss some of the open questions about paying tax on your bitcoin!

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Jill Carlson
They say that there are two certainties in life, death and taxes. And while I don't know of anyone who has yet managed to cheat death, I can promise you that there are those who have managed to dodge their taxes. For as long as governments have been levying taxes, people and businesses have been trying to evade them, and competing jurisdictions have been providing a way to do so. We call these of course, Tax Havens.

Meltem Demirors
Dating back to ancient Rome, republics, empires and city states have fought for commerce and capital flows by using tax policy. In the second century, we see the Roman Republic went to war with the successor to Alexander the Great who ruled Macedonia, King Perseus. The Isle of Rhodes, which was a major port known for its low tax rate, was caught quite literally in the middle of the conflict and quibbled over which side to support. When Rome ultimately won, the Republic declared the neighboring Island of Deli to be a tax free area, thereby punishing Rhodes by undercutting her low tax status and stealing away her commerce and her capital.

Jill Carlson
Deli and Rhodes constituted the offshore tax havens of their time, the ancient versions of Bermuda, Singapore, Tursi, and the Caymans.

In this episode, we'll be covering everything from ancient Naval rates to 9/11, from biblical centers to Swiss bankers. We're talking taxes, tax havens, privacy act, money laundering, and of course, Bitcoin.

Meltem Demirors
Can't talk about it without talking about Bitcoin. You know, it's so financial. I was having a conversation with a friend the other day, and the two things I'm most excited about which are like consciousness and longevity, and crypto, are the two things that you cannot avoid, death and taxes. So we're quite literally trying to cheat death and we are trying to invent new money.

Jill Carlson
This is a funny thing, we think in the crypto space, right? There's frequently, I find a heavy overlap of people interested in cryogenics and Hal Finney, who of course was one of the earliest, earliest adopters of Bitcoin, many people believe that he was Satoshi. He's been cryogenically frozen. And so, I've said-

Meltem Demirors
I love him.

Jill Carlson
-things about him. He was trying to cheat death and taxes as well.

Meltem Demirors
We're all going to pay for Alcor contracts and Bitcoin…

Jill Carlson
Oh God. All right. Next we're discussing cryogenics, right?

Meltem Demirors
That's right, cryogenics. That's actually our new podcast is crypto and cryo. I'm just kidding. Just kidding. As far back as the Bible, we've been complaining about the tax men. And there's the story of Zacchaeus who is seen as a sinner, who's working on behalf of the Roman Empire and levying and unfair tax on the Jews. And going just as far back, we have a history of people evading those taxes because here's the thing, Jill, when people work hard to earn money, they tend to want to keep it, and this introduces the age-old problem that we actually talked about last episode with Mesh Networks, how do we pay for public goods and resources that we want to consume?

Jill Carlson
That's right, and this is a whole can of worms. And now, we can have a political debate over whether taxes are good, bad, or ugly. I'm sure we have lots of listeners from the crypto sphere who are libertarians who've already made up their mind on this, so I'm not going to bother trying to change it in this episode. But the one thing that we know is that taxes are inevitable.

Meltem Demirors
Well, we have to pay for things. Actually, what's funny, so tonight, Jill, we're recording this podcast and I was late. And do you know why I was late?

Jill Carlson
Tell me.

Meltem Demirors
I was stuck on the New York City subway. So here's a great example of something that costs a lot of money, maintaining public transport infrastructure. And one of the raging battles in New York right now is people who come into the city... So I pay an extra 4% city tax, right? And people who come to the city who drive in every day from New Jersey and they don't pay that extra 4%, but they consume a lot of the same public utilities and the same public goods that I do. And so there is a really contentious debate going on right now where New York City's going to introduce the congestion tax, and they're going to charge people driving in from New Jersey a ton of money. And so New Jersey has retaliated by saying they're going to levy the same tax on new Yorkers. And we're like, “That's fine because nobody ever goes to New Jersey.”

Jill Carlson
Yeah, LOL. Thanks Jersey.

Meltem Demirors
I'm like, “Go right ahead baby. Go right ahead. Nobody goes to New Jersey.” Anyways, it's fun, it's funny. It's like a modern day tax squabble.

Jill Carlson
Well, I have two things to say about that. The first is at least you have public transit where you are. I'm in San Francisco where our idea of public transit is VC backed companies like Uber and Chariot, firstly. Secondly though, I mean, it's just interesting to see how these tales are just as old as time, right? Of these different jurisdictions, whether it's on the micro scale, the city scale, the state scale, or the nation state scale, squabbling over these policies. So let's get into some of the history of this.

Meltem Demirors
Totally. Let's get into it. So as we talked about, Jill, taxes are inevitable. I've accepted them as a reality, but so is tax evasion. And so to your point, let's go back in history. You I know are a historian, so I'm excited about having this conversation with you. So many of today's tax havens actually exist for historical reasons and many of them actually grew out of the UK and the British Empire. In fact, the phrase “offshore account” was originally used to refer to the islands in the English Channel, Guernsey, Jersey and the Isle of Man. The other thing, Jill, you'll be interested in now is I have actually been to Guernsey, Jersey multiple times.

Jill Carlson
Oh, were you opening offshore accounts, Meltem?

Meltem Demirors
I was not, we can get into that later in the episode, but it is very interesting indeed.

Jill Carlson
Absolutely. And so these locales, of course, were not alone in being used as tax havens. There were also other British territories, overseas islands like the Caymans, like Bermuda, like BVI, Turks and Caicos, Gibraltar, you name it, that have been used historically as tax havens. And this, of course, just developed as a quirk of their relationship with the crown. This is also true of other former British colonies, Hong Kong, Singapore, Bahamas, Bahrain, Dubai. And it was funny to me actually just in doing some of the research for this episode, I've always known, if you asked me, “Oh, name the tax havens”, I probably would have just given you that laundry list, but never did I ever put together that, of course, these are all former British empire colonies, territories. Some of them are, of course, still territories. So-

Meltem Demirors
Hold on, Jill, let's not forget the original tax Haven.

Jill Carlson
Tell me.

Meltem Demirors
The United States of America, this contract was born out of a tax revolt. It's amazing.

Jill Carlson
Yeah. No, that's very true. That's very true. And so yeah, you get… I mean firstly, leave it to the Brits, but you get these dynamics that have cropped up where in some ways it becomes a very favorable relationship between, say, Britain and Guernsey or Jersey, to have this sort of option. Right? Even if you just think about on the individual level of folks in government who want to have this option to get their money off shore, but then you of course have this tension arise of these jurisdictional disputes.

Meltem Demirors
Of course. And I think an interesting example of that as well is all of the R&D that goes on in Ireland, right? Because as you know, R&D has very preferential tax treatment in Ireland. And what's interesting, so the Jersey joke, which I think is funny, Jersey is known for its cows, so Jersey cows are very famous. It's known for its potatoes, which are called Jersey Royals and it's known for the thousands of hedge funds and law firms that operate out of Jersey. So you've got cows, you got potatoes and you got Shannon's, so very entertaining.

Jill Carlson
What else you need? What else you need? But it's funny that you bring up Ireland. I just a few months ago took a flight that was passing through Dublin and flying to San Francisco, and it was one of the most packed flights I have ever taken. And it was of course, just all of these Facebook, Google, you name it, executives flying back and forth. It's one of the most popular routes. And exactly, it is in large part due to the preferential tax treatment. But so, let's not get confused though because Ireland actually is not one of these British territories that did not grow out of the British Empire. Ireland is actually a part of the European hub of tax events that we also have.

Meltem Demirors
Right. And I actually was born and raised in the European hub, the Benelux countries, Belgium, the Netherlands, Luxembourg. So Bel, no Lux, along with Lichtenstein, everyone's favorite courtesy of the James Bond movie, also Switzerland. And then of course, we can't forget a third area that has developed more recently really post World War II and that's Latin America, particularly Panama, which we'll get to later, as well as Uruguay. That also actually I want to add in that post World War II, many people went to Argentina. So Buenos Aires is very European and feel for this reason, as well as a Chile and Peru.

Meltem Demirors
So there was a lot of activity of people moving to places and a lot of this has to do with actually gun. Our last episode when we were talking about jurisdiction in a digital world, right? A lot of regulation is defined by jurisdiction, same thing with tax law. And so, a lot of these mechanics that people work out are based on trying to ensure that the jurisdiction in which they earn capital is a jurisdiction that's favorable. So people actually pick up and move.

Jill Carlson
Right. And so there's this really interesting dynamic. We talk a lot, of course, in economics, in finance about capital.

Meltem Demirors
Yeah, that's right, Jill, get it right. This is an academic podcast, it's finance.

Jill Carlson
So we talk a lot though about capital flight and how capital flows happen. But of course, where capital goes, often actually people go as well. And so you see these migratory patterns actually being driven by tax laws, which is insane to think about. And it makes sense though, because of course, being a tax Haven, it turns out his big business, it not only attracts capital, it also attracts business.

Meltem Demirors
That is right. And even inside of countries, competition has started to become fierce to be tax friendly. And the States of New Jersey and Delaware actually here in the U.S. became something of these tax havens in the 19th century because they made it really easy to incorporate. And I'll actually say so I own a few companies, you and I actually own one together for our podcast. Right? And we have opted to incorporate our companies in jurisdictions where there is no LLC tax because, for us, it's easier to pay a filing fee. Right?

Jill Carlson
That's right.

Meltem Demirors
In the 1920s, some Swiss cantons actually started to follow suit, starting with the Canton of Zug, and if you're a crypto person, you're very familiar with Zug. Zug is where Crypto Valley is located. And so, it's been interesting to see how taxes have influenced patterns of where wealth goes and where start-ups go. I want to bring up-

Jill Carlson
It's interesting, I just want to touch on Zug for a second. The history here is interesting because Zug was actually one of the most impoverished cantons in Switzerland at the time in the ‘90s.

Meltem Demirors
It was like Jersey. They have beautiful cows. I don't know about the potatoes in Zug. I'm sure-

Jill Carlson
…the cheese is great.

Meltem Demirors
The cheese is excellent. Yes, cows and cheese go together.

Jill Carlson
But it was because it was this impoverished area that they actually, they slashed taxes and they became one of the leaders in this space. So that was really them trying to innovate in terms of regulation and financial laws innovate themselves out of a quarter.

Meltem Demirors
Well, and I think that is the same thing that you see in the Caymans, right? There's one building in the Caymans where literally every Cayman entity is registered. I forget the address, but I know there's an entity I've worked with that's in the Caymans and literally every company that has a presence in the Caymans is registered in that one place. The other thing that's more relevant that's a recent tax dodge is people in the U.S. will know this because we just paid taxes in April, and you probably felt this on your tax bill.

Meltem Demirors
The Trump administration recently passed some tax changes, changes in tax law and one of the big changes they passed was you're no longer able to deduct your state income tax that you pay from your federal tax, where historically you've been able to do that. And so for New Yorkers, especially New Yorkers pay really high… I think California and New York, Connecticut or some of the most expensive States to live in because the state tax is really high. And so, a lot of New Yorkers in 2018 actually sold their homes. Many hedge fund managers, many ultra-wealthy people in finance, they picked up and sold everything, and moved to Florida.

Meltem Demirors
Here's my view. So I have this conversation with my family often because I'm like, “I cannot believe that my effective tax rate when you factor in income tax, state tax, city tax, sales tax, property tax, I'm probably paying close to 60% to 70% tax, which is insane.”

Jill Carlson
At some point you're just like, “What is even the point?”

Meltem Demirors
Well, so I have this conversation, but here's the thing, right? I could pick up my stuff and I could move to Jersey or the Caymans, or a friendly tax jurisdiction, but at the end of the day, I think there's also a real opportunity costs in terms of quality of life. And it's like, okay, you could have a lot of money but live in the middle of nowhere. And you could feel good because you pay no taxes, but at the end of the day, what's the point of living life if all you're doing is trying to dodge taxes?

Jill Carlson
Well, that's the question that I would ask of so many people who work in the crypto space who have very strong feelings about this. But even just in the finance sphere, successful technology entrepreneurs, it feels like so much of life is just revolving around trying to optimize their tax situation. And if you can have it all, fine. If your dream is to live in Palm beach, Florida, go for it. Or more recently, and again, this will be familiar to a lot of our crypto listeners, Puerto Rico.

Meltem Demirors
Puerto Rico, that's right.

Jill Carlson
So Puerto Rico is the one place in the United States that you can live and not pay any taxes. And of course, that that does not come for free, Puerto Rico, as we saw during hurricane season a couple of years ago, it gets punished for that in a lot of ways but it does have this attractive tax status, which has attracted many, many folk…states moved there.

Meltem Demirors
But hold on, Jill. So let's talk about this. And actually Puerto Rico was really popular before crypto as well. There have a lot of traders who moved down to Puerto Rico for both the lifestyle, sun, sea, sand as well as the tax situation. Right? But here's my question to you. If you're living in Puerto Rico and you were living through the hurricanes that hit the Island, and you are left living in an environment where there was no power for six months, was that worth it?

Jill Carlson
Absolutely not. No, I mean, pardon my French, that's totally EFT.

Meltem Demirors
Right? And so this is again, tax havens have been a part of history for a long time. What's been interesting to see is the political pressure that nearby neighbor States as the story we told at the beginning, between Rhodes, Deli, Rome, right? That situation of jurisdictions punishing tax havens attempting ameliorate some of the beneficial impacts of being low tax, it's been really interesting. And in fact, a lot of what we see going on now with the Trump administration, tariffs, trade Wars, a lot of that is an escalation of this fighting that really began the minute that global commerce began as soon as people started getting on ships and forming caravans to cross the desert. So it all ties back together, doesn't it?

Jill Carlson
It does indeed.

Meltem Demirors
Life. Avoid death. Avoid taxes or just accept both and enjoy. Like that's my view. I'm going to pay taxes, I'm going to die. I'm going to have a really good time.

Jill Carlson
Party on.

Meltem Demirors
All right Jill, so why do we care? We just talked a lot about the history of taxes, tax havens, why they exist, but why should we care at all? Well, there's a big reason to care and here's why. If you are already rich, so taxes, first of all, and Jill, you just mentioned to me that there is a game that you can play. It's video game. I see more like some sort of computer game where actually, the whole objective of the game is to evade taxes, right?

Jill Carlson
That's right. It's hilarious. Yeah. It's done by an organization of investigative journalists who broke the Paradise Papers, the Panama Papers. But we'll get into in a few minutes.

Meltem Demirors
But Jill, that game you describe is a game that rich people play every day. And the way they play this game is by hiring lawyers, accountants, corporate finance series, people who understand the nuances of tax law. And here's what's really interesting, in the U.S. when you pay taxes, the IRS doesn't tell you what you owe. They give you thousands of pages of tax code and you have to go and figure out what applies to you and what doesn't. And it's more art than it is science.

Jill Carlson
Well, there's this meme around this that I love, that's like the government says to you, “You owe us money. It's called taxes.” And I say, “Okay, great. How much do I owe?” And the government says, “Oh, you have to figure that out.” “And I say, wait, I just pay what I want?” And the government says, “No, no, we know exactly how much you owe, but you have to guess that number too.” And if you get it wrong, you go to prison.

Meltem Demirors
And if you get it wrong, jail. Right? I'm going to tell a personal story just for a moment and it'll be relevant when we talk about why this matters. So here's a story for you. Can I tell this story, Jill? Do you mind?

Jill Carlson
By all means, take it away. Grandma crypto, we're all gathered around.

Meltem Demirors
Okay. So here's a really interesting personal story. So I was in business school, right? I was getting my MBA at MIT. And during my first year of business… business school's expensive. It's like summer camp, but for two years for people who don't know what they want to do. So it's really funny. But I was in business school, it's expensive. It costs a lot of money. Tuition's pricey. So here I am and they do all these different lunchtime talks. And in business school, I did not have a lot of money. So I'd go to a lot of these lunchtime talks because they had lunch included.

Meltem Demirors
So I signed up for this lunchtime talk on optimizing your taxes while in graduate school. And I was like, “Oh, this sounds interesting.” And so here I am, I'm sitting in this room and there's this CPA who's talking about a very specific part of the U.S. tax code that pertains to continuing education. And if you meet certain criteria, then going to graduate school can actually qualify as continuing education, which is a tax advantaged activity, meaning that your tuition is deductible from your taxes as an expense.

Meltem Demirors
Okay. So the CPA gaming gave this talk, I was like, “Whoa, I don't know what any of this means, but this is really interesting.” So I went and had a meeting with him and I ended up making him my CPA. And I ended up using this part of the U.S. tax code that was created expressly for this purpose. And I did this. And of course, when I did this, I was audited, right? Of course, getting a letter from the IRS, by the way, for everyone who's listening to this, that is the scariest thing ever. And the reason people are so deathly afraid of taxes, and this goes back to the meme, Jill, if you get it wrong, the consequences are not only fines, the consequences include jail time and having your assets frozen, and everything's seized.

Jill Carlson
And it's so bloody complex that it's near impossible to get it perfect, I think. And so that's why I pour all of this money into having an accountant do my taxes for me every single year because, exactly, I'm terrified of this.

Meltem Demirors
But here's what's so interesting, right? So I go to this audit and the way the audit works is the IRS sends you a letter, they tell you that they want to audit your taxes. And so what I did is I prepared folders upon folders, all my documentation. Because of course, one of the things actually having a CPA and working corporate finance taught me is really important to have records and to be able to justify why you made the decisions you did and what information you used, and how you determined what part of the tax code applied to what part of your expenses.

Meltem Demirors
And so, it was really interesting because when you go in and you meet with the IRS, you're talking to an IRS examiner, right? And this person's going to look at all of these records. And some people when they go in and talk to the IRS, they're totally unprepared. They don't have lawyers, they don't have CPAs, like they're screwed. And the thing is, if you're really rich, I'm by no means really rich, I'm in grad school and most definitely not. But I had a really great CPA who knew exactly what he was doing, had done this hundreds of times and could help me understand exactly what was happening and had helped me prepare my taxes. So all the documentation was there. And this is exactly why taxes are a game for rich people.

Meltem Demirors
So here's some statistics because we like numbers. More than 30% of the world's 200 richest people who have a $2.9 trillion collective net worth, that by the way, grows at 6% to 7% a year according to the Bloomberg Billionaire's Index, control large parts of their personal fortunes through offshore holding companies or other domestic entities where their assets are held indirectly. Why does this matter?

Jill Carlson
Yeah, bring that down from email too.

Meltem Demirors
Okay, so look at the, WeWork IPO, right? Everyone's talking about the WeWork S1. When you buy shares in WeWork, you're not actually buying shares in We the company-

Jill Carlson
I love this. I love this.

Meltem Demirors
You are buying shares to the way WeWork's structured, it looks like a Christmas tree. If you invest in the IPO, you're buying shares in a holding company that owns shares in another holding company, that owns shares in an LLC, that owns some of the WeWork real estate and leases, but there's another investor who's offshore who owns another percent. And so, you're investing in this really complex convoluted structure.

Jill Carlson
So, yeah, you are kind to call it a Christmas tree. You know what else a Christmas tree looks like?

Meltem Demirors
What?

Jill Carlson
A pyramid.

Meltem Demirors
Well.

Jill Carlson
I kid, I kid, that's not quite what's going on.

Meltem Demirors
What is it? We are elevating human consciousness. Is that the first page of the S1, is just that phrase? I'm not here to comment on that, but what I'm saying is if you have ever worked in private equity or MNA, or hedge funds, or anything, structuring and having good professionals who can help you figure out how to keep more of your money, that is exactly where it's at.

Jill Carlson
Totally. And it's very parallel, I think, to a lot of what we've talked about in past episodes around financial engineering. That's another rich people's game. Right? And a lot of what we're actually talking about here, yes, it's generally accountants looking at it instead of bankers. The lawyers might be the same though, but this is its own form of financial engineering. It's just a matter of financial engineering using corporations instead of using complex derivatives.

Jill Carlson
But so just to throw a few more numbers into the mix here, in 2016, American companies, because that's really what we're talking about here. Even if it's an individual at the top of the pyramid, at the top of the Christmas tree, whatever we want to call it, often, they're using companies to get wealth offshore. And so, in 2016, American companies skipped out on about $130 billion worth of taxes that they would have otherwise paid to governments all around the world.

Jill Carlson
And then there was about 70 billion of that that would have flowed into Washington D.C. And so just to put that in context, 70 billion, that can sound like a lot of money or a little bit of money depending on where you're coming from, but that would be equivalent to about one fifth of all of the corporate income tax collected by the United States annually. So that's a whole one fifth that's being skipped out on by U.S. corporations. Just not trivial, not trivial at all.

Meltem Demirors
Here's the other thing that's so interesting. This is a statistic I really like to use. So Apple, right? We all know the company, Apple. Apple has more cash on its balance sheet that's domiciled overseas that they can't bring back into the U.S. without paying a lot of taxes. Apple has more money offshore as cash and foreign bank accounts than the entire market cap of all cryptocurrencies.

Jill Carlson
That is awesome.

Meltem Demirors
Isn't that a great statistic? Like Apple has more free cash domiciled offshore than the entire crypto market cap.

Jill Carlson
Totally. Well, so, okay, this is a nice segue actually because I want to go right into both the Paradise Papers and also the Panama Papers here.

Meltem Demirors
Jill, you're really getting after it today. I'm really enjoying it.

Jill Carlson
I don't know. I had a decaf coffee. I'm probably still running on it here. But, so the Paradise Papers were a set of papers that came out a few years ago. Let's see, it was I think 2018, 2017 when an anonymous Reddit user hinted at the existence of them. Just hilarious, that of course this came out on Reddit of all things. And it turned out that a German newspaper had obtained the Panama Papers around the same time. I actually, before I came into this episode, in my research of it, I realized that I'd been confusing the two, but the Paradise Papers were different. They addressed much more corporate tax evasion or offshore tax accounts, whatever you want to call them. Whereas, the Panama Papers were much more about individuals.

Jill Carlson
But so Meltem, here you're talking about Apple, right? So one thing that the Paradise Papers showed was that Apple, which as we mentioned, had been domiciled in Ireland, still is largely domiciles in Ireland. Well, when Ireland went to tighten up some of its tax rules, guess what Apple did? They didn't keep them in Ireland. They didn't re-domicile them into the United States. They just moved billions to the English Channel Isle of Jersey, which we were talking about earlier, where the standard corporate tax rate is still zero.

Jill Carlson
And so one of the really interesting things that the Paradise Papers showed and they named Facebook, Twitter, Disney, Uber, Nike, Walmart, you name it, they were in the papers. But one of the really interesting things that they showed is it's basically like you're playing whack-a-mole, right? Like you can't just tighten the belt of a country or put political pressure on a given jurisdiction to up taxes because then you'll just lose the capital from that country.

Meltem Demirors
Jill, I just had a brilliant idea.

Jill Carlson
Tell me.

Meltem Demirors
So you know how in the last few episodes, I feel like these ideas are converging. So we talked about physical jurisdiction really mattering for regulation and this idea of if you're not in a known physical jurisdiction, if you're in the atmosphere, if you're on a drone and open waters, then it doesn't count. Or there's no clear jurisdiction.

Jill Carlson
If you're on the Block Blockstream Satellite…

Meltem Demirors
Here's my idea. Okay. So I'm going to get a ledger or Trezor or keep key name, your favorite hardware wallet. I'm going to put a bunch of my wealth on it. I don't really have any, but the five Bitcoins I have, I'm going to tape it-

Jill Carlson
Oh, we know about the potato fund, Meltem.

Meltem Demirors
That was a very negative event. It was like a loss of 75% of the capital. That's fine. I've spent so much Bitcoin on random stuff, by the way, and I did all the taxes, like starting in 2015 is terrible. So here's what I'm going to do. I'm going to take this hardware wallet and I'm going to tape it to drone, and then I'm going to fly that drone around, and then I won't have to pay taxes. Right?

Jill Carlson
That's your version of a tax dodge. I love this.

Meltem Demirors
Well, we need some sort of crypto tax search. I feel like we need like, what's the crypto equivalent other than a boating incident?

Jill Carlson
A special thanks to our sponsors at Voyager. In the time it takes me to finish this sentence, Voyager will have search dozens exchanges for the best price on my crypto trades.

Meltem Demirors
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Jill Carlson
So this is an interesting thing that also comes up as we're traveling around, as we travel across borders, right? You're supposed to declare if you're entering a country, if you're bringing in, usually it's over $10,000 worth of wealth…

Meltem Demirors
That's right…but gold doesn't count in that anymore. Did you know that? That rule recently changed-

Jill Carlson
I did not know that.

Meltem Demirors
-to no longer count gold towards the $10,000.

Jill Carlson
That's so interesting. Okay, so gold no longer counts, but the question of cryptocurrencies still remains. And so, if hypothetically, I mean I would never be so foolish as to travel with private keys on me, but hypothetically, if I were, and I had a ledger with $10,000 worth of Bitcoin on it, do I have to declare that? Because that also still comes back to this tax issue, right?

Meltem Demirors
Well, Jill, I have another story for you.

Jill Carlson
Take it away.

Meltem Demirors
All right. So in the end of 2017, it was right after Christmas, I went down to Peru with one of the portfolio companies I'm an investor in. We went to like a little retreat and we were working on a bunch of stuff together. So I came back from Peru, like December 29th or something, and I show up at the airport. It was JFK, I think. And I have global entry, so I have my hat on. I'm dressed in my all black Lulu lemon outfit. I'm looking a little jungley. We were in the middle of nowhere. I have my little suitcase and I'm walking through customs, and the customs officials actually pulled me aside.

Meltem Demirors
They were like, “Are you Meltem Demirors?” I was like, “Who's asking? Like I am.” And they were like, “Yes, we need to speak with you ma'am.” And I was like, “Oh boy. Like this is not good.” So texted…I am like, “Dad, I'm wiping my phone.” I'm like, “Don't contact me. I'll let you know what happens.” So they take me to their little room. Right? They don't even do the thing where they just pull me aside and look at my bags, they immediately take me to the side room.

Meltem Demirors
And here's what they start doing. They take everything out of all of my bags. They examine the lining of my suitcase. They take everything out of my purse and in my purse, I have, I'm looking at it right now. I have a little mini bag that I have little dongles in because I have a Mac book air. So like I have all the dongles and cords, and random things in there. So they empty out all of my purse and in my purse I also had Brad Stevens at Blockchain capital gave me a Bitcoin pin a long time ago. So I had this Bitcoin pin and someone had handed me a 3D printed Bitcoin logo. So I had a few Bitcoiny nerd things.

Meltem Demirors
And so the customs agent, the Homeland Security agent and the customs agent, there were three people in the room, they're pulling out all this stuff and they put all the Bitcoin stuff to one side. And I had a ledger in that little thing because we use a ledger to like encrypt and decrypt things. I use it as a way to…

Jill Carlson
Was there anything on it?

Meltem Demirors
No. No. And so here we are, right? And I have like SIM cards and random stuff and they have everything else and logos is off to one side, like they don't care about my dirty jungle clothes and whatever. And then on the other side, on a table, they have laid out all of my dongles, a little book that has like a few different things written on it and my ledger. And they start asking you a series of questions. They were like, “Do you work in Bitcoin?” I was like, “I don't know what that means. Could you specify?” They're like, “Well, do you own Bitcoin?” I was like, “I don't have to answer that question.”

Meltem Demirors
But it basically was an interrogation, a very long interrogation where they asked me a lot of questions about what I was traveling with. They didn't ask me to log into my phone or my laptop, but this is why I disable the touch login on all of my devices because you can't be forced to enter a password, but you can be forced… Like if you have an iPhone X and you use face recognition, you're a moron because if you're in that situation, they're going to unlock your phone and they're going to go through all your wallets. And they're going to look at if you have a block folio, even if you don't have those assets on you, right? Again, here's where things are confusing.

Meltem Demirors
The other thing that's hard to regulate, Jill, to your point, is if I have a seed to a wallet in my brain, if I have brain wallet I haven't memorized, am I transporting cash cross borders? That's a tricky question, right? The example we talked about in the episode, I'm banning Bitcoin, episode 24. If I travel across a border wearing a shirt with RSA encryption code on it, is that a weapon? Technically, yes, practically, no. But I thought it was really interesting and this will become relevant when we talk about the IRS and Bitcoin later on.

Meltem Demirors
I thought it was really interesting. Ultimately nothing happened, but these people had so many questions. They knew exactly who I was. They knew exactly what they wanted to ask me. And so, I thought it was very curious. I don't know if it had to do with the fact that I went to Peru. I don't know if it had to do with the fact that I was traveling alone during Christmas when typically people travel with families. My trip was fairly short. Maybe it was because they knew I was involved in Bitcoin somehow. I don't know what it was, but to this day I have no Bitcoin stickers anywhere. I never travel with any Bitcoin, anything. I always try to wear a hat and being conspicuous. But these people-

Jill Carlson
Yeah, on my old laptop, I have one of those cryptography 3D stickers that says, “Cryptocurrency is not a crime.” and I've never even thought twice about it.

Meltem Demirors
Girl, no.

Jill Carlson
Exactly. Until I was at the airport in a country where I should not have had that sticker on my laptop, and it definitely got some second looks. I didn't have quite the same extreme of experience as you did, but exactly. I mean, we all have that moment where we're like, “Oh yeah, this is…

Meltem Demirors
Right. So today what I was asking is, I want to have a switch where if I touched maybe like my pinky to my fingerprint on my phone or push a certain sequence of keys, where it just wipes all the private keys from my phone and resets all my apps to zero.

Jill Carlson
Yeah. Yeah. No, I love that. I love that. But okay, so let's return for a second here…no, it's great. Yeah. Going deep. But, so this is you talking about you as an individual crossing borders with money, right? So I want to return to the Panama Papers because this was a real landmark case, at least that came out to the general public. I think that one of the most interesting things about it is that it just gave us a hint of how big this is as a business of getting money offshore. And-.

Meltem Demirors
What's fun about the Panama Papers is you know, how they got all that data?

Jill Carlson
Oh yeah, let's dive into that.

Meltem Demirors
Yeah. It's so fun because it's so crypto nerdy. So I like it. All right. You take it away, Jill. Tell us the story.

Jill Carlson
Okay. So, right. So there's this law firm in Panama called Mossack Fonseca. I think I'm pronouncing that right. And in 2016, I remember actually watching this on T.V. I was in Argentina at the time. I was conducting research on Bitcoin and it just felt so fitting that I was watching this play out in Argentina, researching Bitcoin. It was April of 2016 and Mossack Fonseca at this point just notified their clients that they had sustained an email hack. And they also told some news sources, “Look, the company's been hacked, but we've always operated within the law. Okay. Not sketchy at all.” Right?

Jill Carlson
But so the company, Mossack Fonseca, which was of course dealing with all of this really hypersensitive information for its clients, it had not been encrypting its emails.

Meltem Demirors
Jill, can we just talk about how hilarious this is?

Jill Carlson
And so, okay, not only it had not been encrypting its emails, but they were also running a three-year-old version of some software called Drupal that had several known, like it was obviously exploitable vulnerabilities. Which is just, I mean, come on guys. Fine, if you are some dinky consumer facing app that's tinkering around, like that's still not great. But if you are a law firm dealing with this highly, highly sensitive information, we're basically your only value add, one of your few value ads, it's basically where you're domiciled and then also of course, your discretion, get with the program.

Jill Carlson
But it didn't end there. Right? There were also all of these reports then after the fact that the network architecture was insecure, that email and web servers were not segmented from the client databases in any way. Like all of these crazily problematic vulnerabilities.

Meltem Demirors
Do you know what's so funny Jill? You know how I was saying that if you're really wealthy, you can afford really great lawyers and really great accountants.

Jill Carlson
Yes.

Meltem Demirors
You know what you should also do? Get a really-

Jill Carlson
Penn path.

Meltem Demirors
Get a really great security consultant and protect your shit. Girls just want to have privacy, do a little bit InfoSec, do a little bit of offSec. Like-

Jill Carlson
Be smart.

Meltem Demirors
Be smart.

Jill Carlson
Exactly.

Meltem Demirors
Okay, continue. So basically, Mossack Fonseca has all of this super sensitive data. They are the law firm that anyone goes to when they want to do some of this tax game. So what happened?

Jill Carlson
Wait, there is one more, which was the hacker managed to penetrate their system just using sequel injection, which is like, I don't even code and I know how to do sequel injection. This is just embarrassing. And I mean, the list goes on and on, and on. You can read about it. There's a great book called Down the Rabbit Hole that a guy named Chris Kubecka…

Meltem Demirors
Did you say rabbit hole, Jill?

Jill Carlson
I did say rabbit hole. Down the Rabbit Hole, check it out if you're interested in the nitty gritty of this, if you want to nerd out on it. But long story short, all of these papers got leaked, and lo and behold, all of these heads of state, the president of Argentina, where again, I was at the time that this was all being broken, the president of the Ukraine, the former prime minister of Australia, Silvio Berlusconi from Italy, like everyone and their brother, it seemed like, was named in these papers as someone who had set up an offshore account and it basically engineered their way out of a tax dodge.

Jill Carlson
Which, okay, the irony as well of all of these government officials dodging their own damn policies. Let's just take a second to think about that, right…

Meltem Demirors
Wait, hold on. So this is where I want to talk about really quickly, bank secrecy, right? So do you know why Switzerland became a tax haven?

Jill Carlson
Tell me.

Meltem Demirors
Okay. So Switzerland became a tax haven in the 1700s when European royalty started to stash their cash in Swiss banks. And the Swiss Federation actually changed a number of laws that allowed people instead of how… so in the U.S. when you open a bank account, what information do you need? You need a driver's license and you need a utility bill. You need all sorts of stuff that lets the bank know who you are and the bank has to report that, right? That's part of the BSA or the Bank Secrecy Act. Switzerland was the first place that created something called the numbered bank account. And so what that is, is it's like a private key, right?

Meltem Demirors
Where if you have the numbers to the bank account, if you know the account number, that's the only information you need. There's no ID attached to it, nothing. And so it's really funny because to your point about the Paradise Papers, people have been doing this for a long, long time, and in the 1700s, when the printing press started to facilitate the spread of information, right? Just like the internet now enables the rapid dissemination of information, printing press, the 1700s, royalty, lots of revolutions. Whenever there is wealth inequality, there's revolution. People started stashing their cash in numbered bank accounts. And it's been the preferred way for European royalty to preserve their wealth and evade tax.

Jill Carlson
I just want to make one correction, which was that the Gutenberg Printing Press was first invented in 1450, I think, but I see where you're going with it.

Meltem Demirors
Printed materials, right, like periodicals, newspapers, et cetera, were popularized really in the 1700s and into the 1800s with…

Jill Carlson
I just want to troll you for that before one of our…followers comes out there.

Meltem Demirors
Totally fair.

Jill Carlson
But anyway, yeah, I totally see where you're going with it and I think that that's a really nice segue actually into the next piece of this, which is a very closely related topic, although not completely overlapping, which is financial privacy, right? Because a lot of what people are looking for, the reason why the Panama Paper leak was such a big deal in the paradise Paper leak after that, and so on, is because again, these people are looking for discretion and they deeply value, it turns out their own financial privacy.

Meltem Demirors
But Jill, don't you think that they would… You know how when, we were joking about this the other day. So you know how when you and I or an enterprise procures a new service provider, we do a lot of due diligence on their systems and their infrastructure to make sure it's up to our standards. Like if you had billions of dollars and you're trying to hide them, would you not do just a little bit of due diligence on the people you are using to do that? Like this is what blows my mind because it's so basic.

Jill Carlson
I think yes and no, though. I mean I think probably often, not always, but often, these people, they're not dealing with it themselves. They've hired people on, there are layers and layers, and layers of people of intermediaries basically that are doing the dirty work. Right? And so it doesn't shock me that at some point quality control goes down the drain.

Meltem Demirors
Well, I guess it depends on how good you are. If you're really good, then maybe just nobody cares. Anyways-

Jill Carlson
So let's go back though to this idea of financial privacy and bank secrecy, because as you point out, this is one of the huge things that Switzerland offered, was this numbered bank accounts. I always think of like the classic, the end of the James Bond movie, right? Where he's given the six digit number and there's the image of him getting off the plane in Geneva, and driving his Aston Martin around Lake Geneva and going…

Meltem Demirors
Which, by the way, now in the show, Billions, is a ledger with Bitcoin on it. That's given-

Jill Carlson
I love that. I love that.

Meltem Demirors
And that's like the modern day. That's the hipster, like Brooklyn ver… that's the Brooklyn equivalent of a numbered bank account, it's the ledger.

Jill Carlson
Oh my God. But, okay, but the era of Swiss bank accounts, of numbered bank accounts has come to an end, right? As of 2018, you're not allowed to do this anymore. And this was a huge coup for, I think it was the European union, the European commission that really put pressure on Switzerland and Swiss authorities to end this standard. And this is all part, of course, of a rising tide of concern around KYC, AML, financial transparency, et cetera.

Meltem Demirors
But look, here's my thing, Jill. Life is a long game of cat and mouse, right?

Jill Carlson
Whack-a- mole as I call it.

Meltem Demirors
Every time the cat gets a little bit smarter, the mouse learns. And this is why I loved Tom and Jerry as a kid, right? The mouse gets a little smarter, the cat gets smarter, they spar, and then the mouse figures out a new way. Okay, but here's what we're talking about. One of the popular narratives in the cryptocurrency world, or actually one of the most popular narratives outside of crypto world in Washington D.C. and in places where rules get made is that people are using cryptocurrencies to evade taxes. And I think you and I are in agreement here that that is actually the most ridiculous thing I've ever heard.

Jill Carlson
Yeah. I mean, I don't doubt that there are people who are trying to do this, not recommended. Let's just leave it at that.

Meltem Demirors
And I think a great example, and here's a book recommendation for our listeners. There's a massive scandal that was uncovered last year, actually over the last 18 months maybe, it's called 1MDB. And it was this Malaysian fund run by someone called Jho Low. It's one of the best books I've read in a long time. Best nonfiction, book is called Billion Dollar Whale, highly recommend, two reporters wrote it. But basically this guy, this Malaysian guy who was really fairly young, raised a bunch of money from the Malaysian government because he was very close to the prime minister, billions of dollars.

Meltem Demirors
Goldman Sachs with involved Goldman Sachs being investigated as part of it, a number of Goldman Sachs bankers in Asia went to jail. Falcon Bank in Switzerland actually was also involved in this. They as a result, has had a bunch of problems and have had to face those. But basically, this guy took this money that he raised from the Malaysian government and he didn't actually invest it in anything. He spent it on himself. And the things he spent it on, the things he used to evade taxes and stash his wealth were Hollywood movies.

Meltem Demirors
So he invested in the Wolf of Wall Street. He bought a lot of art. So as things were going south, he would buy art and he now keeps that art on his yacht with him. His yacht is in international waters. It's not really clear like what jurisdiction he's in, but it's the craziest story ever. But nowhere in that story did Jho Low or anyone involved ever even think of using Bitcoin to evade taxes because it's a terrible idea.

Jill Carlson
Right? Right. Yeah, exactly. I mean, what you're talking about here though, it just makes me think of all of the other ways that people evade taxes, right? It's not just about these offshore entities. It's often about putting your wealth into art, into jewelry, into cars-

Meltem Demirors
Real estate.

Jill Carlson
So there's a great movie about John Paul Getty called All the Money in the World and it's based on the true story of John Paul Getty, who is of course, the wealthiest man in the world as of, I want to say like 50 years ago or so. And his grandson gets kidnapped and held for ransom, and he is portrayed as this crotchety old man who-

Meltem Demirors
Oh, this movie is so horrible.

Jill Carlson
But there's this great quote that he says in which he says, “The thing is not to get rich, getting rich, anyone can do that. The thing is to stay rich.” And it shows him in one of the biggest plot things at the end of the movie, is that the whole reason why if you go into any museum in the world, there are so many wings of museums, libraries that have the artifacts that he amassed. And the reason for that was because he was amassing them as a tax dodge on....

Meltem Demirors
Tax write off. Yeah, totally. Okay. So this is another interesting trend and this is the last thing we'll talk about before we dive into the crypto bit. So there's a new trend in the United States and that is that wealthy people are asking to be taxed. So obviously right now it's election season. A lot of politicians are talking about a wealth tax, but a bunch of wealthy people are also asking to be taxed. And there's a really great planet money podcast up. So planet money's an NPR podcast on this topic.

Meltem Demirors
But here's basically what's going on. Every revolution in human history has typically started when there is great wealth inequality. And as you pointed out, Jill, what the Panama Papers revealed, was this massive, not only wealth inequality, but the fact that the wealthy are getting wealthier faster and amassing wealth much more quickly than anyone else. And so basically what's happening is as the global economy grows, more and more, and more of that goes to that really small group of people who control all the wealth, who have all the lawyers, who have all the accountants, who know all the tax dodges.

Meltem Demirors
And so what's basically happening is there's this great inequality that's being created and nobody wants to be at risk because there's going to be some sort of populist revolution. And so what's really interesting here is these wealthy people are asking to be taxed on their wealth. And the idea is that they would pay a 2% to 3% tax on their net worth. And the interesting thing is this is actually a great example of another tax dodge, and using a tax dodge yes, it's always all about the tax dodge, right?

Meltem Demirors
So basically the idea is if they appease the populous by saying we're going to pay 2% to 3% tax on our net worth, and instead of doing like a lot of tricky valuation, let's not even get into how you're going to value people's stuff or even figure out what they have. But let's say that most people play by their rules and there's this wealth tax. The thing is that for these people, their wealth grows at a much faster rate because it's growing in jurisdictions where it's not taxed. And so, what's really interesting is in fact all they're is just slightly slowing the growth rate. So instead of it being 7% or 8% a year, it's 6% a year.

Meltem Demirors
And so I think it's just really interesting how these narrative are around taxation unfold because you see these political discussions and people talk about taxes in a very simplistic way, but in fact, taxes are very complex. And again, it's more art than science. And so, whenever someone starts talking about taxation, my ears perk up because buried in there somewhere is some sort of incentive for someone to get away with something.

Jill Carlson
Right, exactly. And that's the fun of this, is to start to be able to dissect it. And this is the job, of course, of investigative journalists who are the ones who broke the Panama Papers and the Paradise Papers, and so on.

Meltem Demirors
And forensic accountants.

Jill Carlson
That's right. And now getting into crypto. So going over there, we have a new form of forensic accounting that is very easily executed, of course, when everything is tracked on a single transparent ledger.

Meltem Demirors
Yes, single ledger accounting via Blockchain…Death and taxes, and crypto. Let's do it.

Jill Carlson
Yeah. So it would not be an episode of what grind make years if we did not grind for a little bit on crypto. But, so what I want to talk about here, and I don't even think that there is that much to say around it because we've already ground on it a little bit, is just this narrative that Bitcoin is a tax dodge.

Meltem Demirors
Okay. Can I just say for a moment, I've been having this conversation for the last five years with a variety of different people who I think are very intelligent, but when it comes to taxes, all of a sudden, they start acting like fools.

Jill Carlson
100%.

Meltem Demirors
And they're like, “Oh, if I sell Bitcoin and I buy Ether, that's not taxable. That's like for like.” I'm like, “Nah, booboo, when you sell Apple to buy Google, that's taxable.” I don't understand, do not understand good, sir. So yeah, I think it's interesting for some reason when crypto and taxes come up, I feel like everyone forgets everything we know that we literally just spoke about for the last 40 minutes. The moment you talk about crypto, people are like, “New paradigm, no taxes.” And I'm like, “That is the most insane thing I've heard in a long time.”

Jill Carlson
That's not a thing. I mean that's the equivalent of saying as people said to you in the house of representative some few weeks ago, “Oh, well, crypto is not regulated, right?” No, sweetie, it's regulated, it's taxed. Pay your taxes, they will find you. You're doing transactions on a public ledger. You're not Satoshi. You got your fingerprints all over the internet. Pay your taxes

Meltem Demirors
And everyone's sniffing your data. So like that VPN you thought you had, you ain't that smart bunny. Pay your taxes. But, let's talk about this. Okay. So here's the history of crypto and taxes. The first big case in the crypto space was the Silk Road case, right?

Jill Carlson
Indeed.

Meltem Demirors
Yup. And the Silk Road case ended in seizure because the person who supposedly perpetrated the Silk Road crimes was a U.S. resident, U.S. citizen and had servers, was doing this in the U.S. at a public library. And so the DOJ, the Department of Justice seized those Bitcoin, and so that was Silk Road. And then the IRS in 2016 issued a letter. It's notice 2014-21, and this very clearly stated, and I quote that, “For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.” Pretty clear.

Jill Carlson
Pretty damn clear, almost as transparent as a Blockchain, I would say.

Meltem Demirors
Lots of times I'll want Blockchain…LOL. I say LOLs because I think privacy coins, their ability to stay private is quite overrated, but-

Jill Carlson
It's hard. It's possible. It's hard. And I think the possibility is what's important. But we can circle back to that in the next episode if we want. But I do want to make the point, to be fair, there are a handful of areas that are a little confusing when it comes to crypto and taxes, or just plainly a pain in the ass. And one of these, my favorite one, is the airdrops, the giveaways, the forks, the splits. Is it the case that your Bitcoin gold, is that like your cow giving birth to another cow, or is that like a dividend that you've received? Right, so there are these areas of conclusion that can…

Meltem Demirors
Okay. So I haven't logged into my Ether wallet in a really long time-

Jill Carlson
Oh, good heavens, me neither.

Meltem Demirors
But every time I do it, there's like more random shit coins in my wallet because a lot of these airdrops dropped to anyone who had an Ether address. And I don't even know what these things are, but I suddenly have this random dust, right?

Jill Carlson
Yeah. The first time that I did this actually, I literally, I think I called you maybe and I was like, “I don't know what to do. There's all this shit that I didn't buy in here. What is this?” You're like, “Oh, sweetie, those were airdrops, congratulations.”

Meltem Demirors
I know, that's airdrop dust.

Jill Carlson
Yeah, we're now the proud owner.

Meltem Demirors
By the way this is what Stellar did. Do you remember this?

Jill Carlson
I do remember, yeah, of course.

Meltem Demirors
So Stellar airdropped stellar to everyone who had Bitcoin except people who had a lot of XRP, which is so… it's like the best type of shade. Okay. So you just talked about splits, airdrops and giveaways. I want to talk about another one that's a little bit dork here, which was one of my favorite topics, is LIFO/FIFO, which is how you deport your coins. So I apologize, I worked in finance in particular, I did a lot of work on tax structuring, and someone who worked in M&A, the first question is what's the most tax optimal way to do this?

Meltem Demirors
So LIFO is last in, first out. FIFO is first in, first out. So the idea is if I own say 10 Bitcoin and I sell 1, what I need to do is obviously I know the price that I sold the Bitcoin at, but how do I determine which of those 10 Bitcoin I actually sold. So there's two accounting treatments. The first one is to say the last Bitcoin I bought is the first Bitcoin I sell, which is last in, first out. And there's another approach that is first in, first out, which says the first Bitcoin I ever bought way back when is the first one I sell.

Meltem Demirors
Now again, it's really interesting because your plan to deplete your Bitcoin impacts which tax treatment you'd use. So if you don't intend to ever sell a lot of Bitcoin, last in first out, makes a lot of sense because your big coin that you bought later is the Bitcoin you sell first, so your tax base will be smaller. If you do at some point plan to sell all your Bitcoin though, it might be preferable to do FIFO, so those cheaper Bitcoin you bought, you sell it an earlier date, pay less tax on. So the delta is much smaller.

Meltem Demirors
So this LIFO/FIFO question is a really interesting one and I for the last two years have been using TokenTax to do all my crypto taxes because I can just import spreadsheets from all of these exchanges and it automatically links up with the API. So I don't really end up doing a lot of work and it's really a nice tool. There's in a lot of other tax tools that do that, but I use TokenTax personally. Not an ad, I'm not an investor, I'm not paid to say that. But in there, you can actually toggle back and forth to do LIFO or FIFO treatment to see what the tax impact would be of those different treatments. So it's a little dorky, but I think it's an interesting question of how you plan to deplete an asset that maybe you do plan to hold for a long time.

Jill Carlson
Totally, totally. And then, I mean there are a few other areas of this where there are questions that will always remain, I feel, around what is the valuation of your crypto or what's the fair market value. A lot of these things aren't liquid enough. There is questions and market manipulation to contend with, there's questions around staking income. I would put that in the same category as stock splits or as, excuse me, not stock splits, forks. Same difference though.

Meltem Demirors
But it isn't joke because if you're staking, you're taking risk and in some cases, you're expending energy. So I think it's-

Jill Carlson
You're providing a service to the network and so, there's this whole question of whether it's like UBTI income. Yeah. There were all kinds of things-

Meltem Demirors
Is it like 1099-MISC work income? That's actually an interesting thing in the IRS piece, I mentioned IRS code 2014-21. And I know a lot of IRS tax codes, which is really scary, that says something about me. But in there, actually one of the topics that comes up is if you're a miner, is the Bitcoin you earn from mining 1099-MISC income? As in salary income and self-employment income. And as you know, self-employment carries another 17% tax on top of all the other taxes. I don't know if you knew this, it's really messed up. I learned that this year when I paid a really big tax bill and it's really bad.

Jill Carlson
I think you mentioned this to me, which I think is the only reason why I know it.

Meltem Demirors
Yeah. So if you earn mining income though, you could potentially have to pay another 17% on it as self-employed income, because the idea is you should be paying social security and Medicaid, and Medicare, and all the other social taxes on top of just also the income taxes. It's nutty. Like I said, like of every dollar I make, I think 70 cents goes to the U.S. government at some point. So I should just give up and kill myself now, do the death and stop the taxes.

Jill Carlson
What happened to cryo in crypto…?

Meltem Demirors
I'm feeling depressed now, Jill. What's really interesting, right? So the question to me, so the first topic that comes up a lot is diminimous taxes. Do you want to talk about the diminimous question, Jill?

Jill Carlson
Oh my God. Yeah. So I mean, this is whenever anyone talks to me about crypto payments, this is where my head goes. It's like I think that yes, like lightning is going to take us closer to that. I think that there are all of these innovations on the technology side that are going to get us there-

Meltem Demirors
Jill, you have to do the accounting on that one. Satoshi, I tipped to you yesterday.

Jill Carlson
Exactly. I mean Meltem, I have this joke with you or anytime I owe you money for anything, what do I pay it to you in?

Meltem Demirors
I don't want to talk about this.

Jill Carlson
I pay it to her in ETC, you guys, I pay it to her in Ethereum...

Meltem Demirors
You're an asshole, Jill. I just want to tell you-

Jill Carlson
I am.

Meltem Demirors
-you're an asshole.

Jill Carlson
I am.

Meltem Demirors
Because that $300 he paid me a few months ago, ETC is worth like $100 right now, so you're an asshole.

Jill Carlson
But I'm also an asshole because I now have to pay taxes on this. I have to deal with the tax, the tax code around the $300 worth of ETC that I bought and then sent to you and effectively sold.

Meltem Demirors
Okay. I want to tell a quick grandma's story. I'll keep it really brief. So-

Jill Carlson
Go for it and then we're out.

Meltem Demirors
In 2015, I'd never spent a Bitcoin before 2015 mostly because I didn't know how to and you really cut it, and the price of Bitcoin only went down. So there was no opportunities. So 2015, I'm working in crypto investing, super cool. I had a Coinbase for the first time, super cool. And in 2015, so there's this new product that came out, it's called the Shift Card. It was a visa card that was linked to your Coinbase wallet. Basically what it was, it'll allow you to spend your Bitcoin by linking your wallet to this visa debit card.

Meltem Demirors
And so I thought this was super cool. I took a picture of it. It's on Twitter somewhere. I was so excited about it, I took a picture of it, obviously blocking out the card number. I even researched, that's how I found Metropolitan Bank, is they were the issuer of the card and that's how I learned about the relationship between Metropolitan and Coinbase. Total sidebar, read all your T's and C's, super fun information in there. That I had this card and I was like, “This is so cool.”

Meltem Demirors
So I had a lot of work travel coming up and so what did I do? I bought a bunch of stuff with my Shift Card and I thought it was really fun, and I was like, “Oh, I'm spending Bitcoin.” So first and foremost, I bought burrito, I bought sushi, I bought wine. That burrito, it's nowhere near the 10,000 Bitcoin pizza, but it feels that way to me. That was a very expensive burrito in hindsight. And then the other pieces, my taxes were a PITA, a pain in the ass. It was so shitty, Jill, because I had to figure out do I do last in, first out or first in, first out? What Bitcoin did I spend when I bought my freaking burrito? At what costs did I acquire that Bitcoin?

Meltem Demirors
I had been lightly buying Bitcoin on Coinbase, but a lot of the Bitcoin I had gotten, I had gotten from like faucets or bought in 2014, in 2015 early. So I had to go back and try to figure out what did I pay for these coins? It was the worst experience in my life and after that I never spent Bitcoin again because it was a PITA.

Jill Carlson
A PITA. But so, okay, look, to wrap this up though, here's the thing, pay your taxes kiddos. Pay your taxes on your crypto. Don't try and do this funny tax dodge. If you want to move to Puerto Rico, go for it. That's your prerogative.

Meltem Demirors
You're still going to have to pay taxes on your Bitcoin in Puerto Rico, by the way.

Jill Carlson
You get to hang out with Brock Pierce though. But crypto has not solved the tax problem any more than I believe, and I'm a skeptic. Cryogenics has solved the death problem. So just face reality-

Meltem Demirors
Pay your taxes.

Jill Carlson
Pay your taxes.

Meltem Demirors
Don't go to jail. Don't get audited. And if you are going to do your taxes, do them really well, have lots of documentation. And then one of the things you should probably do at some point is talk to someone about your taxes. If you're paying a lot, just talk to someone that's really helpful. Just like people are experts in some things-

Jill Carlson
Your therapist.

Meltem Demirors
No, your accountant. Yes. You may have to talk to a therapist after you do your crypto taxes. But look, TokenTax for me, four hours last year is all the time I spent on my crypto taxes.

Jill Carlson
Boom, there it is.

Meltem Demirors
The first year I did it, it took a little bit of a time to get it all set up and there was a bunch of stuff to figure out, but they're super helpful there. Again, lots of other tools that do it, but yeah, these are public ledgers. Pay your taxes. That's very true.

Jill Carlson
All right, well, thanks so much for tuning in. Tune in next week for more grinding.