Poor Crypto tax accounting is one of the #1 causes of failure. It can result in paying higher taxes.
What does your Crypto accounting look like right now?
This is the 5th video in the Top Crypto tax problems series. We will now go over Crypto Tax problem # 5. Please watch all the videos in this series to gain awareness in how you can solve a specific virtual currency taxation issue that’s on your mind. The links to all 4 videos in this series can be found below.
My name is Mark Robert, Crypto Tax Advisor and Accountant. In this 8-part article and YouTube video series, I share what I’ve discovered in my 5 years helping my virtual currency clients during my 17 years as an accountant for individuals and businesses.
Your Crypto tax accounting must have accurate data you get from exchanges or your own records. Without the data for each cryptocurrency transaction during the year, you can’t complete form 8949 on your basic tax return. Then you won’t be in compliance with the IRS or your state tax authority.
Crypto Accounting Problem #1:
If you do NOT know what you paid the IRS requires you to use zero as you cost basis. (That means you’ll pay a capital gains tax “as if” you received the Crypto for free. And then will be taxed at 100% of the amount you sold it for.)
Example if you do NOT know your basis (or acquisition cost):
1.) Do not know your basis or acquisition cost, then your basis is zero.
2.) You sell the cryptocurrency at $10,000.
3.) Then your capital gain is $10,000 – 0 = $10,000 taxable gain!
Obviously, poor recording keeping and loss of transactional data can dramatically increase the amount of tax you pay…
…Don’t let that happen to you!
Cryptocurrency Accounting Problem #2:
Accurate crypto tax accounting requires you to track the cost basis and USD prices for all cryptos across all exchanges used, multiple wallets, and protocols at any given time. You can see, this quickly turns into an extremely overwhelming, complicated and frustrating nightmare. Then adding each of those transactions correctly to your accounting records to complete your taxes becomes an almost impossible, spreadsheet exercise.
To help you a little in your Crypto accounting, US exchanges are providing you a 1099. They are also sending a 1099 of your crypto transactions to the IRS. However, this gives the illusion that all the info you need to complete your tax returns is on your 1099-K.
The problem with 1099-ks in crypto is, the second you transfer crypto into or out of an exchange, that exchange loses the ability to give you an accurate report detailing the cost basis and fair market value of your cryptocurrencies, both of which are mandatory components for tax reporting. Coinbase themselves explains to their users how their generated tax reports won’t be correct due to a number of common scenarios…
…This makes accounting for Crypto extremely difficult!
Per IRS rules: It is each taxpayer’s responsibility to keep a complete record of all their crypto activities.
If you can’t remember or have lost transaction data, your tax professional specializing in cryptocurrency tax accounting can help you do some Forensics/detective work to find these important transaction numbers and correctly/accurately reconcile them so you stay in legal compliance with the IRS and your state tax authority in order to avoid paying more tax than you’re legally responsible for and do not miss out on potential tax savings in the process.
If any of these top 8 crypto tax issues hit home to you or would like to add additional information you feel will help others, please put it in the comment section below.
- Have you lost your virtual currency transaction data?
- How have you been successful in achieving good Crypto tax accounting?
- Would you like to add something you feel will help others?…
…Please put it in the comment section below.
If you want more practical information about how cryptocurrency taxation works and how to potentially cut your taxes through Crypto accounting help, tax planning and strategy, please subscribe to my channel now. This way you don’t miss a next video where I cover a Crypto Tax issue that fits your situation and provides a solution to genuinely solving that problem.
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