Because users are constantly transferring crypto into and out of exchanges, the exchange has no way of knowing how, when, where, or at what cost basis you originally acquired your cryptocurrencies. What the USD value was at the time of the deposit. The second you transfer crypto into or out of an exchange, that exchange loses the ability to give you an accurate report detailing the cost basis of your cryptocurrencies, one of the mandatory components for tax reporting. The exchange only sees when crypto appears in your wallet.

If you’re planning on holding your cryptocurrency for the long-haul, a cryptocurrency IRA can be a great option. With a self-directed IRA, you can hold cryptocurrencies and dispose of them on a tax-free/tax-deferred basis once you’re near retirement age. Donating cryptocurrency is not subject to capital gains tax, and you claim a tax deduction based on the value of your donation! Donating cryptocurrency is a great way to make a positive impact and claim tax benefits.

Example: Why is it difficult to report crypto taxes? Can’t provide him with accurate tax records. You can read more about the “crypto tax problem” in our blog post: Why Exchanges Canʼt Report Crypto Taxes. As pictured below, Coinbase explained to users how their generated tax reports wonʼt be accurate if any of them transferred crypto into/out of Coinbase. He transfers his crypto to a cold wallet. Billy sells his crypto for $15,000 on Exchange B. Exchange B doesn’t know Billy’s original cost basis. This affects over two-thirds of Coinbase users, which amounts to millions of people who cannot rely on Coinbase’s calculations to prepare their tax forms.

Note, CoinLedger requires “read only” access to your exchange account. 3. Finally, generate your complete crypto tax reports with the click of a button. Does not give CoinLedger any ability to move funds or transact on your behalf. The entire cryptocurrency ecosystem is still in its infancy. Once youʼve generated your tax reports, you can send them to your tax professional or import them directly into your preferred tax filing software like TurboTax or TaxAct. Our team tracks every update in the world of cryptocurrency regulation, and we will continue to update this blog post with the latest guidelines from the IRS. You can test out the software yourself by creating a free account here. You can also follow us (sneak a peek here) on Twitter for real-time updates and tax savings strategies. As the industry evolves, further rules and regulations will inevitably come. This type of access protects your funds.