When trading cryptocurrency, there are a variety of transactions that take place. Each transaction has a specific action, and in turn, is classified a certain way. Some examples of the transactions that you may be enacting with crypto are: purchases, trades, sales, etc.
Some of these transactions will be taxable events, and others will not. Taxable events are when a gain or a loss is recognized and they must be reported to the IRS. In order to accurately report gains or losses, your transaction history needs to include all of the transactions involving your crypto!
Included in this article you will find:
Which transactions does TaxBit need?
"Sales" occur whenever you sell a cryptocurrency for a fiat currency (USD, EUR, CAD, AUD, Etc.) this is considered a taxable event.
Example: Selling 2.50 BTC for -$7,200.00 USD
"Trades" occur whenever you trade one cryptocurrency for another, this is considered a taxable event.
Example: Sending 150 USDT and receiving 150 USDC
Expenses occur whenever you purchase something with crypto, this is considered a taxable event. The USD value of the expense is calculated based on the value of the crypto at the time of the transaction.
Example: Buying a watch from a friend for 25 USDT
Transfer fees are considered taxable events. A transfer fee is considered an exchange of an asset for a service. However, the transaction type itself such as transfer in/out is not taxable.
Example: Depending on the platform you're using, when you transfer an asset out of one place into another a fee is issued in order to complete the transfer.
Buys occur whenever you buy cryptocurrency with fiat currency (USD, EUR, CAD, AUD, Etc.), the transaction is not considered a taxable event. However, these transactions are still critical to include in your TaxBit account. Your buy transactions will establish cost basis, for calculating the gain or loss when the asset is offloaded in the future.
Example: Using $10,000 USD to purchase 2.50 BTC
Income is recorded whenever you receive an asset from mining, staking, airdrop, hardfork, interest earned, or rewards (Card spending rewards are not included). It is not considered a taxable event under the capital gains tax. However, these transactions are still important to include in your TaxBit account as they will help account for and establish cost basis, similar to buy transactions.
Additionally, the amount earned needs to be reported on your taxes as income.
Example: Receiving 0.0127423 ETH from staking as $41.10 USD worth of income.
Transfer In and Out
Transfers occur whenever you transfer cryptocurrency between wallets or exchanges.
Example: Sending .00452 ETH from your hardware wallet, to your exchange
Please Note: Some exchanges and wallets will not tell TaxBit that your income transactions are actually income! These transactions will sometimes appear as “Transfer In.” If you have any transactions that you know are actually “Income”, you can easily edit those transactions to reflect that.
Locate the transaction in your account > Click the Pencil Icon on the far right of the transaction > Change the “Type” to “Income” > Click “Save Changes” at the bottom. (Screenshots provided below.)
Gift Received and Sent
Disclaimer: Although gifts of crypto are under non-taxable transaction types, there are instances where one can exceed the IRS limits of tax-free gifting.
Gifts occur whenever you transfer cryptocurrency between people with no reciprocation or movement of an asset, good or, service in return.
Example: Receiving 1 BTC from a family member from their wallet to yours.
- What is Cost Basis?
- What does "Unknown Gains" mean?
- What accounting methods can I use to calculate my cryptocurrency gains/losses?
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