How to file tax for Crypto Currency

How to file Tax for Crypto Currency (1)

Yes.. it’s the time of the year again.
YES TAX

There are a lot of information flying around in the Internet.
I thought as long as I don’t cash out my coins, I wouldn’t have to pay my tax.

I also read the news article saying IRS requested Coinbase to give the list of users who spent more than 20K to purchase Crypto Currency…..

I was so scared.
I researched and researched and asked professionals and finally got the answer.

Three taxable events in Crypto Currency

  1. Cash out your coin to USD or whatever actual currency
  2. Mine coins
  3. Buy coins with other coins

Basically, in the US, a transaction between Crypto Currency is a taxable event

WHAT?!

How to file tax for Crypto Currency

What does that even mean?

Basically, if you buy coins with other coins, you might have to pay tax if you are gaining profit….

WHAT?!

How to file tax for Crypto Currency

What GAIN are you talking about?

I was really confused on this too. I didn’t gain anything. I just traded my coins.
That’s what I was thinking but IRS doesn’t think so.
Let me explain with some examples.
Assuming you had transactions like these:

  1. Buy a Bitcoin when the price of Bitcoin is $10,000
  2. Wait till the price of Bitcoin goes up to $12,000 and buy Ethereum when the price of a Ethereum is $500
  3. Wait till the price of a Ethereum goes up to $1000 and buy Litecoin with the Ethereum when the price of a Litecoin is $100

In this example, 1 isn’t taxable but 2 and 3 are.
let’s calculate for 2.

So you have one Bitcoin which worth $12,000 and the price of Ethereum is $500 so you can buy 24ETH($12,000/$500).
At this moment, IRS sees that you sold your Bitcoin and bought Ethereum.
You bought Bitcoin when it was $10,000 and sold it for $12,000 so your GAIN is $2,000.
Depending on your tax bracket, you have to pay % of the gain.

For the transaction 3, now you have 24 Ethereum and its price went up to $1,000 a coin from $500.
You sold all those 24 coins and bought Litecoin.
You can convert everything to USD to see this easier.
You sold $24,000(24x$1000) of Ethereum but you originally bought $1,2000 worth of Ethereum.
So you GAINED $12,000($24,000 – $12,000).

Are you confused yet?

It gets complicated quickly

How to file tax for crypto currency

What if you only bought 10 ETH instead of 24 and maybe you buy more Bitcoin later when the price is $13,000?
The most of my transactions are like that.
I had about 500+ transactions last year.
I don’t even remember buying some of coins.

I honestly thought it’s impossible.

Crypto Currency isn’t 100% private

How to file tax for Crypto Currency

Also, I heard the scary news that IRS hired a company to track down your transactions.
I know you want to believe crypto currency is anonymous.
It is for some extend but as you see, when you buy coins from Coinbase, your name is attached to the account.
They know the address of the coin you are sending to and all the transactions between addresses are public.
It’s not impossible to figure out what addresses belong to who.

There are some private coins like Monero and some others but if your money suddenly disappears into a blackhole, IRS will ask you where it went. I don’t know if I want that.

How I figured it all out

I was seriously in panic. I didn’t think I would be able to calculate all the transactions.
I was also using 4 different exchanges including Binance.
It’s just too complicated.

I googled and googled and I finally found a service that lets me track all my coins.

It’s CoinTracking.

How to file tax for crypto currency

As the name of the site suggests, it lets you track your coins.
You can upload CSV files of trade histories or directly connect to your exchange using their API and automatically track your transactions.

See there is Binance!!

How to file tax for crypto currency

It’s really easy to use and up to 200 transactions is free!

CoinTrack seriously saved my life.

It has a built in Tax report generator.
I know how much I owe IRS now.
I also know exactly how much I made and where my moneys are.

I really recommend CoinTrack!
I will explain the detail of how to use CoinTrack in up coming articles.

Good luck!

Read these!
Counting Cryptocurrency Gains And Losses Without Running Afoul Of IRS Rules
How IRS explains

About Naomi Suzuki

I'm just an ordinary guy having fun with crypto currency. I love Binance and I want to share the beautify of it.

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