Bitcoin went mainstream as an investment in 2017 — hitting an all-time high of around $20,000 in December. Not surprisingly, numbers like these also drew the attention of tax authorities around the world, with many announcing plans go after digital currency investors.
While the chance of being audited is typically quite low (for example in the U.S. it is reportedly less than one percent) the reality is that if you have made substantial investment gains in the past few years without taxing them and you are found out, this could lead to a criminal conviction that may include prison time. Hence, ensuring that you pay any applicable taxes on your digital asset investment income makes sense.
In this article, you will discover three applications you can use to help you with your cryptocurrency tax reporting.
CoinTracking is one of the leading cryptocurrency tax reporting solutions. The application launched in 2013. It allows you to link your exchange accounts to your CoinTracking account using APIs or CSVs. Once all relevant trading accounts are linked to CoinTracking, the tax reporting platform enables you to view all trades you have made as well as a detailed breakdown of your investment gains and losses. The platform, therefore, shows you exactly where you made a profit or a loss and also alerts you of any unrealized profits.
Currently, CoinTracking supports over 5,000 cryptocurrencies and allows you to classify all your trades based on the digital currency exchanges you have been using. This can be especially useful when trading on several different international exchanges as tax requirements may differ from country to country, depending on your personal tax jurisdiction.
Moreover, CoinTracking also allows you track ICO investment income as well as any profits from cryptocurrency gambling activities (which do not need to be taxed in most countries).
Finally, with all this information, CoinTracking is able to generate a tax report relevant to your tax jurisdiction. CoinTracking is free for users who have made less than 200 trades. For more active users, the platform charges a fee. Furthermore, the platform does not require access to your funds and is fully encrypted to ensure sufficient security and privacy for its users. Mobile versions of the application are also in the works.
BitcoinTaxes is another popular cryptocurrency tax reporting platform and functions in a similar manner to CoinTracking. The platform was launched in 2014. To generate a tax report using the platform, you first need to import all your trades from supported exchanges or using a CSV file as well as any other cryptocurrency-related financial transactions such as mining income or donations.
Next, the platform calculates your capital gains and losses. At this point, you can choose which accounting methodology you want to use. You can choose from FIFO, LIFO, average costing, and comparing like-kind treatment. Since there is no official guidance on what approach to use to determine cryptocurrency gains and losses (yet), users are still free to choose which accounting methodology to apply to their crypto asset capital gains/losses calculations.
Then, BitcoinTaxes will provide you with a capital gains report for your investments, an income report for cryptocurrency mining returns, a donation report for cryptocurrency donations made, and a closing report, which encompasses your net profit or loss and the costs basis going forward.
Coinbase’s Tax Calculator
Finally, if you are a Coinbase user, you can also utilize the new tax calculation tool that was introduced in early March. In the announcement on its company blog, Coinbase stated: “As a reminder, gains on digital currency sales and exchanges are taxable in the US. We understand taxes for digital currency can be complicated, so we updated our tax tools to make reporting easier.”
Using Coinbase’s new tax tools, users can establish a complete overview of their trading activities and calculate trading gains and losses to facilitate the filing of cryptocurrency investment profit. More specifically, users can generate a report that details all buys and sells as well as all digital currency send and receive transactions. This data can then be used as the cost basis to determine trading gains and losses that users have generated on the Coinbase platform.
Next, Coinbase users can determine their taxable amounts by applying the First In/First Out (FIFO) accounting methodology. Coinbase also highlights that all cryptocurrency-related tax reporting should be discussed with a tax advisor before filing is due to ensure that all filings have been completed appropriately.
For those who have primarily used Coinbase to trade digital currencies, the company’s new in-built tax calculation tool offers a great solution to ensure that all digital currency earnings are being properly taxed. However, for those who have been trading on a range of different exchanges or have invested in ICOs, CoinTracking or BitcoinTaxes currently offer more encompassing cryptocurrency tax reporting solutions.