Hey all, I just wanted to share what I’ve been learning in regards to taxes for all these sweet sweet gains we’ve been getting these past few months.
This is for US based only, so it might be helpful for other countries but I’m in the US and that’s what I’m focused on.
If you are terrible like me, you have basically been running around the crypto space doing whatever you find that could make some money. I have a crap ton of weird services and wallets to compile. I started to try and exporting all my transaction history from all the exchanges that I’ve used and going to the blockchain trackers to download the data. All of this was getting pretty overwhelming and most of it doesn’t have fair market value, which you need.
WHAT YOU NEED TO SHOW Basically you need to be able to show the Tax Man the fair market value you bought the crypto you have at and how long you held it, and what you sold it at, and that’s for EVERY transaction you’ve made for the year. It’s almost a given that you will have wallet transactions as well as trades and swaps on exchanges. Maybe even some purchases of real world goods(i.e. I bought a few hardware wallets with my crypto, totally fun! But that’s a sale of your asset and you have to keep track of those.)
So the crazy thing about this is that if you forget a service you used or lose track of a wallet, it kind of breaks the chain of custody and takes credibility out of your data. So the best thing is to has as complete if not completely complete data if at all possible. All the way from when you fiat on ramped to where your value sits now.
The reason it’s important how long you’ve held is if you hold a specific token without trading it for over a year you can actually save a lot of taxes on it.
WHERE THE INFORMATION IS STORED
Your Data is going to be on centralized off chain exchanges where you’ve traded. Decentralized on chain exchanges. Wallet addresses that you have used or still use. And any other weird services you’ve used(custodial wallets mostly, I use a wallet connected to a tip bot on Telegram, this is an off chain wallet)
HOW TO GET IT INTO THE CORRECT FORMAT
The Tax Man wants it in IRS form 8949 all nice and neat. But there needs to be backup as well. I don’t know at this point if the back up is specifically for audits or you have to submit it with your tax returns. I am assuming just in case of audit.
So I went on a few of the exchanges and I’ve used and attempted to get the info I needed, but to my surprise they don’t make it very easy. None of the trades I could see had any fair market value on them. So I was kind of lost. I will tell you. If you’ve only done a few trades in crypto, for instance you just went on Coinbase and bought some ETH and have not traded it or moved it since you should have a very easy time. If you’ve never sold it, then you don’t even need to claim any gains until you do sell it. But I’ve been going nuts the last few years and last year I had a lot of losses and although I may need to eventually file backwards, I didn’t make enough to even warrant a 1099(less than 500$) so I’m not too worried about prior years. This year is different though and I’m I’ve got to weed through a load of weird transactions and trades.
WHAT I FOUND AS MY BEST SOLUTION A lot of you might be annoyed that you had to read all the way for this solution, but for me I had to get through all logic that I was not going to be able to or it’s not worth my time to unravel all of the trades and swaps and transactions that I have made.
I did some research and I found a few tax specific services that really made me breath a sigh of relief. To any of you out there who are overwhelmed by all the crazy stuff youve been doing in the crypto space and don’t have a clue how you are going to unravel it. There are services out there that work.
The ones I have found so far, and I would love to hear of any others that people use that they have had success with. I have not used any of these yet, so I don’t have knowledge of the experience, but from just signing up and what they let you do as a tutorial, there is hope out there for us!
I played around with cryptoTrader.tax and found that I liked the interface a lot, they let you chose the services that you use right at the beginning and then walk you through the import process for each one. I was able to find most of the services I use, but was unable to figure out how to account for transactions between wallets and also Uniswap. I was able to find one called TokenTax.co that has Uniswap support and looks like it will be easier to import wallet data as well as most of the exchanges I use.
A lot of them are really easy because on popular exchanges they allow you to use an API to import them all. This means you just go to the exchange and create a read only API. Wallets it looks like you can import by entering in your wallet public address and it can read the data from the blockchain.
There are some other things I haven’t quite figured out yet and I’m not sure which service I’m going to use yet, but I feel a lot better about the prospects of everything that these services exist. These services do cost money though. Anywhere from 49$ for a very basic account to 199 for a premium. I also found TokenTax has a service you can have them do all your taxes including crypto with a crypto knowledgeable CPA for $499 or $799 for more complicated returns. Or if you are running some sort of crazy operation that I can’t even comprehend it would be $2.2k. If you just want to calculate your crypto and do your return somewhere else you can probably get by with a basic 65$ plan or a $199 premium but it sounds like it’s more manual.
I’m just happy I can pay for something that can get this done without me sifting through thousands of transactions. Next year I’m going to be a TON more careful about how I use the space. Document everything and make sure I have everything accounted for.
What have you guys found?