By Ben Marks, Founder and CEO, Blocktrade Capital
Crypto taxes sound scary, but with proper preparation and guidance, they don’t have to be. The first thing you need to do to ensure a smooth process is familiarize yourself with the popular tax tracking websites. Bitcoin.tax and Cointracking.info are free to sign up for and let users input a certain number of trades before requiring them to upgrade to a premium account. They support Binance, Bitfinex, Bitstamp, Bittrex, CEX.io, Circle, Coinbase, Cryptopia, Gemini, GDAX, HitBTC, Kraken, KuCoin, LocalBitcoins, Poloniex, and a few other small exchanges. It’s imperative that your trading activity comes from these exchanges, because otherwise you’ll need to input the trades manually, and that’s an awfully time-consuming process.
The first step is to gather your trade history data from the exchanges. Usually there’s a tab for “trade history” or “transactions” or something along those lines. When you go to that tab there’s usually an option to “export.” Make sure the date range is for the period you’re looking for and save the exported data onto your desktop. Do this for each exchange you’ve used to trade during the tax period.
Now that you’ve gathered your trade data, it’s time to upload it to the tax calculator site. Sign up for a free account on Bitcoin.tax or Cointracking.info, and once logged in, look for the “exchange import” page. Find the specific exchange you’re going to upload your data from, and then upload the .xls or .csv that you exported to your desktop from the exchange. This calculates all the gains/losses on all your trades, but you still need to calculate the actual tax amounts on the capital gains.
At this point, you may be required to choose to FIFO vs LIFO for the accounting basis. There hasn’t been a standard set here, and it’s still up for debate as to which method is correct for cryptocurrency taxes. Try both options and see what the resulting tax payments are. If they’re the same, then the manner of accounting does not matter, so proceed to the next step. But if the FIFO and LIFO tax calculations are different, you may need to do some independent research to determine which method is best suited for you.
Now that you have the crypto portion of your taxes done, it’s best to hand everything to a tax accountant. He or she will know whether to apply the short-term or long-term gains rate to your taxes, and make sure you’re taking advantage of all possible deductions. The important thing in the meantime is to make sure you’re using exchanges supported by Bitcoin.tax or Cointracking.info.
While it may seem daunting at first, filing your crypto taxes is surprisingly simple. Follow the aforementioned directions and you’ll be well on your way to success.