Accounting and Tax for Web3 Based Founders - Eric Nghiem

so real quick my name is eric i'm an nft d-gen i got way too many jpegs i'm over-invested by a lot i also run a full-stack accounting and consulting company that helps nft project founders oh got it thanks brother i appreciate it um what we're going to talk about today is not financial advice obviously you're going to want to speak to your your professional your tax professional your legal professional unless you're retained by myself then it would be financial advice do you run research and my twitter if you have any questions and there's also a free poap that i'll be minting to everybody in here is erockneum e-r-o-c-k-n-g-h-i-e-m if you tag me or you slide into my dms happy to answer any questions right now and uh i'll be happy to send you either a copy of the slideshow or the or and also the poap that's been minted so what i want to talk about today is accounting and tax right it's number one it's like let's be real it's not sexy i know i'm a good looking guy and everything but accounting and tax is not normally a sexy topic but for business owners founders that are looking to scale and go to the next level this is a really crucial topic right if you want to sell your company you want to bring in investors you need to have clean financials and i get it the web 3 space decentralized economy we're like we're going to be on non-kyc and go under the wire who cares you've got all these tokens coming in but if you want to legitimately get your business at next level you're going to want to make sure you have these clean financials right and i always believe that great accounting and tax support should always be seen as an investment i think a lot of folks they look at their legal team and their accounting team like man this is expensive or is that this is an expense i would invite you to reframe that thought process okay i invite you to reframe that thought process that your legal team and your accounting team are investments in your business they should be a profit center to you okay so the first question i always ask we're going to talk about three topics today because we've got we don't have that much time the first one is what kind of business entity and where you set up your business entity matters as a founder as a business owner right and i always ask folks when they come in to chat with me are you creating a lifestyle business or are you creating a business to exit and i believe many of us in here are probably creating businesses to exit but if you're an nft founder or web 3 founder it's just creating a lifestyle income maybe an art project you're launching a small art collection that type of business entity and structure is going to be vastly different than somebody that is going to look to exit their company or bring on investors right so typically if you're looking for a lifestyle you're looking at in america we call these s corporations they're pass-throughs easy to set up if you're looking at bringing on investors if you're looking at bring on outside capital looking to scale this business and make it massive you're going to want to set up a very specifically designed c corporation now a lot of folks a lot of us might not be fans of the irs right especially in the crypto world the government says cryptocurrency is a scam in a bubble but then when you realize you gotta cash out and take the money out that's when they're like pay up the reality is as founders as business owners the irs is a silent partner they do absolutely nothing for us besides let the economy happen but they take a big chunk of our net revenue right so it's really important for us to make sure that we're structuring our companies and our corporations in the most advantageous advantageous way possible there's a couple of really cool and creative irs provisions that i like using with my clients one is called section 1202 what that is is it allows your company when you exit it the first 10 million dollars of capital gains when you sell it comes out to you income tax free right so that can save you two million dollars so these are little things right these are little things one section here a form here a form there could save you millions of dollars for your company over the lifespan of it and i just want to reiterate because i know a lot of us in the crypto space we hear all different things a lot of folks like oh i have that non-kyc whatever the reality is especially if you're looking to scale and grow your business every single cryptocurrency transaction regardless if you exchange it for fiat or you cash it out into your fiat bank account can trigger a taxable event right so you want to make sure that how you distribute capital from your from your stuff comes out as efficiently as possible and the thing is when it comes to traditional accounting it's usually pretty easy you stream your bank accounts it goes into quickbooks you reconcile you pay your taxes crypto's a little bit different especially if you're receiving things like ethereum or bitcoin because that capital asset does move up and down so on top of what you might have as what we call ordinary income or the net profits from your business you may also have a capital gain or capital loss on those assets as they might sit on your balance sheet of your business or as you cash it in to operate your business and just keeping track of the basis is a pain in the butt so i'm going to share a couple tools that i love using for my clients that help keep things streamlined because a lot of founders right now they're using a mishmash of google sheets and it's a nightmare to update and if that one team member leaves the company or the organization for that knowledge base to stay with that google sheet doesn't always happen so i'm going to show a couple tools i like using so let's talk about wallet infrastructure so this is something that i like to say is my technical side i have i don't know anything about coding right i'm an accountant i do finance stuff but i love building the infrastructure of a company to help make things much more understandable and usable so let's talk about wallet infrastructure and this is more designed specifically for nft projects we work with some of the biggest nft founders in the in the in the world capsule house owning force uh blockchain miners club we we do a lot of work and advisory work for like steve aoki and for uh the chain smokers and stuff like that so we focus a lot with web through side on nft so here's an ideal wallet structure and again if you go into my twitter sliding my dms erockneem i'll send you a copy of this entire presentation so if you have an nft project you typically have two streams of income you have your mint and then you have your secondary sale royalties all of that's going to typically flow into the deployer wallet right and usually it's probably a gnosis multi i say that doesn't have to be but usually it could be and what you're going to want to do and this is where a lot of founders kind of mess up is you're going to want to run it into an operations wallet and operations is like the operations account of your business that's where you're paying your expenses out of contractors you might have contractors you're paying in crypto right and then if you're an nft project a real popular thing right now is creating a dow or a treasury so you're going to want to split off some of the funds into a community treasury wallet and then from there you might have fiat expenses payroll for your employees software hosting all these things that you might not be able to pay in crypto so you're going to want to have a corporate fiat off-ramp or an exchange things like gemini right gemini is a good one ftx they need to be linked to your corporate employer id number your federal tax employer id number the biggest mistake i see a lot of founders doing is they're using their personal coin base account and if you've seen the news that's been rolling out over the last couple of days cryptocurrencies can be much more heavily scrutinized by the federal government you do not want to commingle corporate funds with personal funds so you want to have a specifically set up corporate crypto account of crypto exchange and then from there you just transfer your corporate fiat bank account my homie don is the attorney of my crew we love using mercury they're venture backed right that's a great fiat bank account and then from there you could pay your expenses through adp gusto all that stuff for payroll and then if you're an nfd project a lot of them are integrating merch right i see mute and ape yacht club i'm a member too homie yo let's go if you have merch typically merch is sold in fiat through a shopify store that fiat would flow into your corporate fiat bank account so this is an ideal structure right this structure is number one easy to understand it's easy to track and it's going to keep you out of trouble if you're ever audited by the irs or you need to show investors the flow of how your money comes in your cash flow and your revenue this is a really clean map to be able to explain that okay so we've talked about a couple things right corporate entities super important there's a lot of taxes that can be done to help you save with regards to taxation and then we've also talked about the wallet setup the wallet setup is super important but now you're sitting here thinking man this is a nightmare how do i keep track of all these things so i come from traditional finance right i've been in accounting space for 13 years a financial planner for five and we like the financial space is still running like in the 90s i do love irs representation work like if clients get audited by the hours i go into the irs i sit down in front of the auditor and i help you know plead the case or put the case together and every time i come in and i sit in front of an irish representative i look at the computer they're working on and it's not a computer it's a terminal if they rotate it to you and i know i'm maybe i'm gonna like like show my age but it looks like dos or basic right it's pure text like the irs is still running on pascal if you guys know that programming language so it's super old school right so if you're thinking of traditional finance and trying to integrate financial reporting for your investors for maybe your dow treasury members and stuff like that you're going to want to be able to use a couple of tools that i love using so here's a couple of accounting tools that i absolutely love right now for my clients the first thing is probably the biggest game changer and most accountants do not understand this yet and this is still kind of a moving space things are still shifting right i love using gilda dot finance my homie back there rain is the co-founder of that company guilded out finance is basically where we're going to translate cryptocurrency into u.s dollars to allow us to translate it into our traditional accounting software without this you're working with a mishmash a show of google sheets it's a disaster right so gilda finance helps streamline that whole process and then when it comes to the tax side of things for any of you who are nft degenerates like me like i have 900 nfts and it's a disaster i use tools like zen ledger and coin tracker many of you might be an individual nft or a crypto investor right now those are the two tools i love using from a tax professional's perspective working with my clients zen letter and coin tracker now once you're able to translate that data into something that that traditional finance can read then we move it into a traditional accounting software i love using quickbooks online and it quickbooks online works fantastic for companies what's up brother okay okay i get it i get it zero is pretty good too i get it i get it but we love using quickbooks just because it's all over it's synonymous everyone is able to utilize it and collaborate on it netsuite and then different tax suites and then from there once you're able to migrate that information traditional accounting then you can use traditional financial tools like fundraising right that's important for all of us if you're minting an nft project and you're bringing in three to five million dollars on mint that sounds really cool at first but then you realize to actually execute on your roadmap to build a game right to build all these things build these communities it's going to cost significantly more than your initial launch so you might want to go and get a fundraise you might want to get loans you might want to get payroll set up for your employees so these are all things to consider i just wanted to kind of cover you know a roadmap of what we figured out you know we work with some of the top nft projects some of the biggest celebrities in the world when it comes to their nft projects and my objective is to try to educate more cpas more accounts on how things are done to make the whole process more seamless