You can aggregate all of your transaction history by hand by pulling together your transactions from each of your exchanges and wallets. A platform like CoinLedger can automatically import your transactions from all of your wallets and exchanges. The easiest way to report your crypto taxes is to use crypto tax software. Once this is done, you’ll be able to generate an accurate tax report containing all of your transaction data. Of course, this can take a lot of time and energy.
What is cost basis? In the example above, Charlie’s cost basis is $250, while his proceeds are $400. Charlie has a capital gain of $150. Later, he sells ETH for $400. Cost basis includes purchase price plus all other costs associated with purchasing your cryptocurrency (fees, etc). Cost basis represents how much money you put into purchasing your property (i.e. how much it cost you). Charlie buys ETH for $250.
In the near future, the IRS will have even more information at its disposal to identify tax cheats. What happens if you don’t report your crypto taxes? How do you lower your crypto taxes? As cryptocurrency adoption accelerates, it’s likely that we’ll see more cryptocurrency tax audits and tax prosecutions. Over the past several years, the IRS has aggressively cracked down on cryptocurrency tax compliance issues. The IRS can enforce a number of penalties for tax fraud, including criminal prosecution, five years in prison, and a fine of up to $250,000.
You’re required to report your capital gains income. Ordinary income on your taxes. We dive into the reporting for each of these income types below. To fill out Form 8949, list all of your cryptocurrency trades, sells, and disposals into the relevant column (pictured below) along with the date you acquired the crypto, the date your crypto was sold or traded, your gross proceeds, your cost basis, and your gain or loss for the trade. Once you have each trade listed, total them up and fill in your net capital gain or loss for the year at the bottom. Form 8949 is the tax form that is used to report the sales and disposals of capital assets, including cryptocurrency. Other capital assets include stocks and bonds.
In some situations, investors buy the same cryptocurrency at multiple price points. February 3: Henry buys 1 BTC for $50,000. These cost basis methods determine the ‘order’ in which your cryptocurrency gets disposed of. Let’s walk through how these cost basis methods work. The first cryptocurrency you acquired is the first you dispose of when calculating your gain or loss. If you find yourself in this situation, you’ll need to use a cost basis method like FIFO, LIFO, or HIFO. March 3: Henry buys 1 BTC for $40,000. FIFO: FIFO is first-in first-out. What is Henry’s capital gain?
