Cryptocurrency Taxation

Episode Summary

Colin created Bitcoin.Tax in 2013 to solve a problem for himself, and for the cryptocurrency community. Since then, Bitcoin.Tax has expanded rapidly, continues to grow, and improving to suit the needs of our customers.

Questions & Answers [For the full answer, navigate to the portion of the podcast as indicated by the timestamp next to the question]

Q: What information goes in the Spending Tab? If I didn’t make any purchases using crypto, do I still need to import my exchange data into the Spending Tab? [02:12]

A: Any non-trade where you are spending crypto to purchases goods (e.g., a gift card) or paying for services (e.g., paying for food delivery). Tips and donations are also entered in the Spending Tab, and can be categorized as such.

Q: How do I report lost or stolen crypto? Will this count as a loss? [04:25]

A: Lost and stolen crypto can be added to the Spending Tab. This will remove the cost basis of that lost/stolen crypto, but the fiat worth of the crypto will not be deducted from your capital gains.

Q: How do I report coins that are at zero (worth zero now)? [07:25]

A: Some zero-worth coins can be added to the Trading Tab as a zero-sale. However, this is a highly situational situation – always consult with a tax professional to assess what should be done about zero-worth coins.

Q: When do I use your Standard CSV? [08:42]

A: When you are trying to add data from an exchange or wallet that is not inherently supported by the system.

Q: If I transfer a coin from a wallet (whether it be purchased with fiat on Coinbase or mined) to another exchange and then sell it on this exchange, I will end up with an unmatched transaction. How do I reconcile it? Where do I enter this data in your software? [10:49]

A: This will not result in an unmatched trade, as long as you enter the source information showing the coin’s acquisition as well as the data showing where/when/how it was disposed of. If the coin was purchased on Coinbase, transferred to a wallet, transferred to another exchange, and then sold on that exchange, you would only need to import your Coinbase data and import the data from the exchange that the coin was sold on. If the coin was mined, the mining income would need to be added to the Income Tab.

Q: What is the most common reason for an unmatched trade? [13:05]

A: The most common reason is a lack of data. Other common reasons include incorrectly entered data, incorrect times and dates, timezone errors, missing fork/income data, and one coin using multiple symbols.

Q: When is the appropriate time to use the “address” function? [24:05]

A: The address function is meant to pick up data that you aren’t able to import any other way.

Q: Where do you get the price for crypto from? [25:20]

A: Prices typically come from the exchanges itself, when data is imported. If the software needs to do a price check for an asset, we use our own pricing data (going back to 2010) from various exchanges and sources. We use a weighted daily average from these sources.

Q: Why does Turbotax Online have a 250 line limit? [27:24]

A: We can’t speak for TurboTax Online, but this is likely a limit set in place to ensure that their users can upload their data without an issue. TurboTax suggestions aggregating the data, and so we offer aggregation options in response to this limit.

Q: I only ever invested 5,000 dollars, why does my report show a cost basis and proceeds in the hundreds of thousands?[31:35]

A: 1099-K forms, from exchanges, typically only show proceeds. Any time you sell or trade a coin, your proceeds go up by the fair market value of that coin, even if you traded the coin at a loss. It’s important to remember that proceeds are not an indication of how much money you’ve profited trading cryptocurrency. The important figure, and the one that is taxed, is the capital gains (proceeds – cost basis).

Q: If I need a larger plan than I originally paid for, do I have to pay the whole price of the new plan? [34:30]

A: No. You only have to pay the difference between the plan you currently have and the plan you want to upgrade to. This can be done by going to Account -> Plan.

Q: I bought and held some crypto back in 2016 and 2017, but didn’t sell them until 2018. Do I need to buy plans for all those years? [35:27]

A: It depends on if you need to report your taxes for 2016 and 2017. If yes, then you will need to purchase the plans for 2016 and 2017 in order to export the reports. If not, and you only bought crypto with fiat in those years, you can enter the data into 2016 and 2017 for free. You would also have to purchase 2016 and 2017 (as well as any year) if you did trade crypto for other crypto. All trading data from every year needs to be imported to properly calculate your gains.

Q: How do I account for forks? [37:45]

A: Forks can be added to the Income Tab. If the forked coin has a fair market value at the time of the acquisition, you can enter that value as income. If it does not, you can enter it as a zero-cost acquisition. Entering a fork as zero-cost is essentially deferring the tax on it until it is traded, in which case, you will incur the full amount of the proceeds as a capital gain.

Q: I bought some crypto back in 2017 but never withdrew any money, just traded some other alt-coins. Do I need to report anything? [39:53]

A: Buying crypto for fiat is not a taxable transaction, in itself. Once that crypto is disposed of for fiat, for another crypto, or for goods or services, then a taxable event occurs. If you only bought crypto for fiat, you do not need to report this, but you will need to keep the records of these purchases so that you have a cost basis when you do dispose of the crypto.

Q: Bittrex recently announced that they are closing down in New York state? Do I need to do anything? [42:20]

A: Download and export your data from them ASAP. In addition, it’s always a good idea to consistently back up your trading records from all exchanges, in case they close down or you lose access.

Q: What are some of the new features coming to Bitcoin.Tax? [44:28]

A: Enhanced accuracy on coin pricing (from daily average to hourly average), new exchanges being supported, new CPA version (white-labeling), and calculations of maximum values on foreign exchanges for FATCA/FBAR reporting.

We hope that we’ve been able to answer some of the frequently asked questions from our customers. As always, if you need a hand, or have any questions, you can reach out to our excellent support team by visiting https://bitcoin.tax/support. Be sure to check out our regularly-updated Knowledge Base for even more answers to your questions.

Stay tuned for our next podcast series, where we will be interviewing key experts and businesses in the cryptocurrency space!