cryptocurrency and those on disability


 

Hello guys. I hope this finds you well. I am a guy who is interested in cryptocrrency. However, if I got anywhere near serious, it could affect what I receive in disability payments.


Does anyone know exact rules about how this works or doesn't work? Right now, it isn't making money for me. I have tokens in a place where money isn't being made. Any ideas on this are appreciated.


P.S. If I start with crypto, I will use a service called Gemini. They require you to upload your I.D. card to prove you are who you are.


Luke Davis
 

Presumably, you are in the United States?

Here is an investopedia article that has some interesting comments on the subject of passive investing while receiving disability payments. https://www.investopedia.com/investments-an-important-income-source-for-people-with-disabilities-5097365

If you receive SSI (and I believe SSDI), you are not permitted to have any resource valued over $2,000. It's like they don't want you to ever get off it, or something. :)
You can get around that with an Able account these days, if you're in a state that provides them and their not full of fees, but you won't be trading crypto in one of those. I'm pretty sure they can't be self-directed at all.

How that $2K limit applies when using investments to make unearned income, as discussed in the above article, I'm not sure.
Negatively, if I had to guess.

All that said, however, Crypto would very likely involve active trading, and I can't imagine you could qualify that as unearned (passive) income.

Even if you were to run it as a soul proprietorship business, and get trader tax status, so that the income could be counted as business income for IRS purposes, and you could deduct various things, you would still have problems. Doing that is technically fine with the SSA, and if you are skilled at tax deductions and other things, you can make a reasonable income while still nearly going broke every year from a tax point of view, which is what the SSA cares about in such circumstances.
But, your business will have to have assets, and they will most likely be worth more than $2,000, which will still sink you with the SSA because the assets are in your name.

You have one other straight forward option that I know of, which is to create a corporation or limited liability company (the latter are easier to manage), elect to have it taxed as a C Corporation in the case of the LLC, and do your trading through that.
In that case, none of the assets are held in your personal name, and are not linkable to you by any standard means of Check Systems reports and the like.
However, you will have to run it as a real business, and you really should be making money with it eventually.

There is another problem with that avenue, however, which is the IRS.
Two of them, probably, if they still don't like passive activity corporate entities.
The main one, though, is the wash sale rule.
That is a bit beyond the scope of this already too long message, but you can google it for fun and hair pulling.
In very short, if you sell a security, and then buy "substantially the same" security within 30 days, you must include the value of the old security in the basis of the new.
You want the mark-to-market rule, which will allow you to treat buying and selling securities as normal inventory transactions.
You will also want qualified trader status, probably, which lets you treat these transactions as ordinary income and loss, rather than as investment income and loss, which can destroy you if you have a year with more than $3,000 in losses (you will).

You can elect those things more easily as an LLC than you can as an individual, I believe, so there's that.

You will also want a daytrader accountant eventually, to do your taxes. The cheapest one I know charges about $800 per year. I can dig up his info if you need it.

I found an article that gives a little overview of all your options here, probably a lot better than I have: https://www.investopedia.com/articles/trading/09/incorporate-active-trading.asp

This Google search is good for qualified trader/trader tax status: https://www.google.com/search?ie=ISO-8859-1&hl=en&source=hp&q=trading+cryptos+qualified+trader+status+irs&btnG=Google+Search&iflsig=AINFCbYAAAAAYHfgZXGPbdSPsI-30f70Bgd24pEEIpGa&gbv=1

Lastly, you might find this useful for the disability side: https://brendanconley.com/faq/questions-about-benefits/what-are-the-income-and-asset-limits-for-ssi/

This message does not constitute legal, tax, or financial advice, and should not be relied upon for any purpose other than entertainment.

Luke

On Apr 14, Governor staten wrote:

Hello guys. I hope this finds you well. I am a guy who is interested in cryptocrrency. However, if I got anywhere near serious, it could affect what I receive in disability payments.

Does anyone know exact rules about how this works or doesn't work?


 

I am in the United States. I could see your point that crypto would not be passive income. You have to be quite activeley trading.


I agree with you. It is as if they don't want you to get off of that system. I will have to read this message a few times and check the links too. It sounds as if a disabled person wanted to do something with crypto, they would risk losing their benefits.





On 4/15/2021 2:10 AM, Luke Davis wrote:
Presumably, you are in the United States?

Here is an investopedia article that has some interesting comments on the subject of passive investing while receiving disability payments. https://www.investopedia.com/investments-an-important-income-source-for-people-with-disabilities-5097365

If you receive SSI (and I believe SSDI), you are not permitted to have any resource valued over $2,000. It's like they don't want you to ever get off it, or something. :)
You can get around that with an Able account these days, if you're in a state that provides them and their not full of fees, but you won't be trading crypto in one of those. I'm pretty sure they can't be self-directed at all.

How that $2K limit applies when using investments to make unearned income, as discussed in the above article, I'm not sure.
Negatively, if I had to guess.

All that said, however, Crypto would very likely involve active trading, and I can't imagine you could qualify that as unearned (passive) income.

Even if you were to run it as a soul proprietorship business, and get trader tax status, so that the income could be counted as business income for IRS purposes, and you could deduct various things, you would still have problems. Doing that is technically fine with the SSA, and if you are skilled at tax deductions and other things, you can make a reasonable income while still nearly going broke every year from a tax point of view, which is what the SSA cares about in such circumstances.
But, your business will have to have assets, and they will most likely be worth more than $2,000, which will still sink you with the SSA because the assets are in your name.

You have one other straight forward option that I know of, which is to create a corporation or limited liability company (the latter are easier to manage), elect to have it taxed as a C Corporation in the case of the LLC, and do your trading through that.
In that case, none of the assets are held in your personal name, and are not linkable to you by any standard means of Check Systems reports and the like.
However, you will have to run it as a real business, and you really should be making money with it eventually.

There is another problem with that avenue, however, which is the IRS.
Two of them, probably, if they still don't like passive activity corporate entities.
The main one, though, is the wash sale rule.
That is a bit beyond the scope of this already too long message, but you can google it for fun and hair pulling.
In very short, if you sell a security, and then buy "substantially the same" security within 30 days, you must include the value of the old security in the basis of the new.
You want the mark-to-market rule, which will allow you to treat buying and selling securities as normal inventory transactions.
You will also want qualified trader status, probably, which lets you treat these transactions as ordinary income and loss, rather than as investment income and loss, which can destroy you if you have a year with more than $3,000 in losses (you will).

You can elect those things more easily as an LLC than you can as an individual, I believe, so there's that.

You will also want a daytrader accountant eventually, to do your taxes. The cheapest one I know charges about $800 per year. I can dig up his info if you need it.

I found an article that gives a little overview of all your options here, probably a lot better than I have: https://www.investopedia.com/articles/trading/09/incorporate-active-trading.asp

This Google search is good for qualified trader/trader tax status: https://www.google.com/search?ie=ISO-8859-1&hl=en&source=hp&q=trading+cryptos+qualified+trader+status+irs&btnG=Google+Search&iflsig=AINFCbYAAAAAYHfgZXGPbdSPsI-30f70Bgd24pEEIpGa&gbv=1

Lastly, you might find this useful for the disability side: https://brendanconley.com/faq/questions-about-benefits/what-are-the-income-and-asset-limits-for-ssi/

This message does not constitute legal, tax, or financial advice, and should not be relied upon for any purpose other than entertainment.

Luke

On Apr 14, Governor staten wrote:

Hello guys. I hope this finds you well. I am a guy who is interested in cryptocrrency. However, if I got anywhere near serious, it could affect what I receive in disability payments.

Does anyone know exact rules about how this works or doesn't work?






Luke Davis
 

Governor staten wrote:

It sounds as if a disabled person wanted to do something with crypto, they would risk losing their benefits.
If you did it all above board, and you didn't use a corporate entity of some kind, then yes probably.

They make it very hard to utilize non-traditional employment if you're on SSI/SSDI, and even if you do manage it, you have to be very careful of those resource limits or you will end up paying them thousands of dollars back in what they consider over payments.
(because if they decide you went over, even by a couple dollars, they can void your entire payment for any months you were over, and you will then owe that back to them. You can pay over time, but still.)

You can do self-employment while on those systems, but spend it all, every month, and don't have more than $2K left over on a month boundary.

For any kind of securities/currency/crypto trading, unless you can replace your entire disability income at one shot, I probably wouldn't try that in my own name as an individual. Now, with a corporate entity as described in my other message--I'd certainly try that, if I had enough seed capital to make it worth while. You can pay yourself out of it under the resource limits and income limits, until it's making enough that you don't need the disability income any more.

YMMV. Not financial/investment/tax/legal advice.

Luke

"In this life there are obstacles, and forces who overcome obstacles. You can be either one or the other.
If you refuse to even try to clear an obstacle, you become the obstacle."
- Joel Shepherd


Brian Tew
 

I do not think ssdi has any means test, but I am not even a spert.
You should check wist ssa.