When trading cryptocurrency, there are a variety of transaction types that take place. Purchases, trades, sales, etc. Some of these transactions will be taxable events, 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 where an asset was acquired or disposed of.
Included in this article you will find:
- Which transactions TaxBit needs
- Which transactions TaxBit does not need
- What is Cost Basis?
- What does it mean if I have missing cost basis?
- What tax methods can I use to calculate my cryptocurrency gains/losses? (Coming Soon)
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 .0001 BTC for $1.00 USD
"Trades" occur whenever you trade one cryptocurrency for another, this is considered a taxable event.
Example: Sending .00881040 BTC and receiving 116.7404 TOMO
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 car by sending a person 1 BTC
Other Necessary Transactions
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 $1,009.72 USD to purchase .1165 BTC
Income is recorded whenever you receive an asset from mining, staking, airdrop, hardfork, interest earned, rewards, or as a gift. It is not considered a taxable event. However, these transactions are still critical to include in your TaxBit account. The amount earned needs to be reported on your taxes as income, and the transaction records the cost basis of the asset as what you received as income for when you dispose of the asset.
Example: Receiving .58569173 MCO from staking as $2.58 USD worth of income.
Which transactions do not need to be in my account?
Transfers occur whenever you transfer cryptocurrency between wallets or exchanges, this information is not relevant to taxes. You can transfer it between your wallets and exchanges any number of times and it will not impact your taxes whatsoever. If you already have transfers in your account, there is no reason you need to remove them. They are never going to be considered when calculating your taxes.
Example: Sending 1 BTC from your exchange, to your hardware wallet