When using Bitcoin and other cryptocurrencies daily and day trading, especially with trading bots, accounting can become a nightmare!!! According to the United States IRS, every crypto transaction is a tax event. Why? Well, there was a value to those bitcoins or other cryptocurrencies when acquired, let’s say at value ‘X,’ and when spent, let’s say at value ‘Y.’ One is responsible for the differences in value ‘X’ and ‘Y’ and taxed accordingly. So if the value ‘X’ is less than ‘Y,’ the transaction results in a gain. Or if the value ‘X’ is greater than ‘Y,’ the transaction results in a loss. That means that every exchange transaction, token swap, payment to a friend, any purchase using bitcoin or other cryptocurrencies is a taxable event. So you can see how this can get very messy very quickly.
Fortunately there’s an easy way to manage cryptocurrency taxes. Cryptocurrencies use blockchain or distributed ledger technology (DLT). The blockchains in most cryptos are viewable, meaning one can see transaction records. Well, there’s the ledger, and you didn’t have to enter anything! And all you need is a program to decipher the transactions and organize them- in, out, transfers, etc… Some programs use API’s (Application Programming Interface) to link to your custodial wallets, exchanges, and DeFi apps. If you have funds in a non-custodial wallet, you can provide the Address or wallet’s View Key. These programs can then track, record, and calculate all the events you need to complete certain forms needed for filing your cryptocurrency taxes.
Filing your Cryptocurrency Taxes
Since doing my own taxes for over 20 years, I need the tools to complete them easily and accurately… without breaking my brain. I use CoinTracker.io and TurboTax to help me generate the necessary documents for tax purposes.
CoinTracker helps me with calculating cost basis & capital gains, error reconciliation, margin trading, DeFi functionality, tax summary by wallet, and more.
I’ve been using TurboTax for years… TurboTax is an easy do-it-yourself online tax preparation program to help you file your taxes. What I love about TurboTax is that they have cryptocurrency integrations for CoinTracker! With all your crypto trading platforms and wallets linked to CoinTracker and TurboTax, it’s easy to file your taxes. Boom!
Using TurboTax and CoinTracker together saves me the headache of calculating crypto income, gains/losses, and filling out complicated paperwork. It saves me so much time.