"Cost basis" is the original value or purchase price of an asset for tax purposes (in our case, cryptocurrency is the asset). Keep in mind that this is different from the asset's current market value, and in order to assign cost basis to a particular asset, it's important to make sure that the acquisition data has all been recorded on your TaxBit account.
Example: Were you an early adopter and bought 1 BTC for $2,000 before the price skyrocketed? Then your cost basis for that purchase is $2,000.
Cost basis is a critical part of calculating your crypto taxes, and one that is often overlooked or misunderstood. Because crypto is considered a capital asset, it is taxed based on the difference in value between the moment that you acquire an asset and the moment that you dispose of an asset. In other words, your capital gain or loss is what will be taxed.
In order to determine any potential gains or losses you made, we need to know the asset value at the time of purchase, i.e. cost basis. Cost basis is established when buying an asset, receiving it in a crypto to crypto trade, from mining, staking, income, airdrop, hard fork, interest earned, rewards, or as a gift.
Think of disposals as anytime you are losing custody/control over an asset. Types of taxable transactions include sales, trades, and expenses. Once you dispose of a crypto asset, TaxBit will take the original cost basis, compare it to the current market value, and calculate whether you've realized a taxable gain or a loss. For more information about transaction types, you can visit this article linked HERE.
In short, without knowing what your cost basis is, TaxBit can't produce an accurate tax form. It's important to know the acquisition of your asset, any movement of the asset that occurs, and the disposal in order to track your cost basis and determine the taxable gain/loss.
Please Note: There aren't always Transfer transactions involved. Sometimes people will acquire their asset and dispose of it on the same platform. However, if there are transfers those are important to have accounted for in your account in order to properly track cost basis.
How Do I Add Cost Basis?
To add the cost basis, you need to add the acquisition data for a given asset. The most important part of using TaxBit is making sure all of your transactions have been recorded properly.
- If your exchange is on the Supported Integrations list and the option to connect via API is available, you’ll want to establish that connection for your transactions be accounted for in TaxBit.
- If you cannot connect via API and your platform offers the option to export your transaction history into a CSV file, you can import the CSV file into your TaxBit account.
- If you’re unable to get a CSV export from your platform, then you can manually add transactions. To do this, click the Transactions tab in your TaxBit account. Then, click Add Transaction at the top right side of the window. Fill out the transaction details—check out this guide HERE for more info on transaction types—and click Save Transaction.
What is a "Cost Basis Pool"?
As you accumulate assets over time, TaxBit creates a pool of "cost basis" that is available for disposing of based on the date they were acquired as well as the USD value paid to acquire them. Depending on your accounting method, TaxBit’s tax engine will refer to the cost basis pool for the best available asset to fit with your disposals (sales, trades, etc.).
You can view your accounting method on the Taxes page, and you're welcome to choose between the two available accounting methods. You can read more about accounting methods HERE.
Here's an example of how a Cost Basis Pool would work:
You purchased 1 BTC for $50,000 USD and then another 1 BTC for $20,000 USD. Your cost basis pool would contain 2 BTC in total, stored as two separate entries. Each entry in the cost basis pool would be tied to their acquisition date and the amount of USD you used to acquire the asset.
Keep in mind that you may have multiple cost basis pools for the same asset if your accounting method is set to Specific ID - HIFO by Exchange. The example above might have been two purchases on Coinbase, but if you were to also acquire two more BTC on KuCoin, you would have two different cost basis pools: one for Coinbase and one for KuCoin.
Still have questions? You can interact with our Chatbot by selecting the Chat Widget located at the bottom right side of your screen, or fill out this form HERE to submit a support inquiry request. Our team is happy to help!
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