Crypto tax reporting can get increasingly complex– especially as the number of crypto transactions you have to track increases. While there are many tax tools out there that can help you with your crypto reporting needs- they are not made by everyone. So if you want to prepare your crypto tax report without the help of any tool- then our guide ahead will help you do just that. To make it simple for you, we have divided the process into three parts- the Parameters, the Math, and the Reporting.
The Parameters or the data points are things that you need to record with every crypto transaction. The most crucial transaction parameters that you must record with each transaction include
● The Dates: This includes the date when you first acquired the cryptocurrency (through mining, forks, received it as a payment, etc.) and the day it was redeemed (used to pay for services, exchanged for cash or another cryptocurrency). These dates will be used to calculate our next parameter.
● Cost Basis: The cost basis of crypto includes the total price you paid for it (if it was purchased or exchanged) and any commission or fees involved in the transaction. This can be called the buying price of the crypto if you bought it.
● Market Value: The Fair Market Value of the crypto on the day you redeemed it helps you calculate your capital gain or loss.
Once you have the above parameters, it’s time to do the math. You only need to calculate two things- your holding period and the gain/loss.
● Holding Period: The holding period is the difference between the date you acquired and the day you redeemed the crypto. If it is less than one year, then the crypto is taxed as short term gain/loss, and for periods equal to or greater than a year, it is considered a long-term capital gain.
● Gain/Loss: If you received crypto in exchange for any goods or services, through mining or via a fork, then you have made a capital gain equal to the fair market value. In cases where the purchasing and sale of crypto were involved, there can be a capital gain/loss depending on the prices. You can write off any losses up to $3,000 from your income.
Once you have gathered all the data mentioned above, generating your report is all that’s left. You can use a table similar to what’s in Form 8949 to make it easier to fill up paperwork later. The format of the table is given below.
|Token Amount||Date Acquired (mm/dd/yyyy-hh:mm:ss)||Date Disposed or Sold Off (mm/dd/yyyy-hh:mm:ss)||Holding Period||Tax Rate |
(based on your tax bracket and holding period)
|Proceeds/ Sale Price||Cost Basis||Gain/Loss (Proceeds minus Cost Basis)|
|0.0243334 XYZ||05/04/2018 11:00:05||04/08/2020|
|2 years 3 months|
Since you need to report short and long-term transactions separately, calculating the holding period will help you filter the data and fill the forms accordingly. Using a Spreadsheet tool like Excel can help you apply formulas and make calculations automatic. Thus, with a few simple steps, you can do your crypto reporting without any tool.
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