Cryptocurrency Taxes Made Easy with CoinTracking

0
112

I got into cryptocurrency in the first part of 2017, and while I knew it was likely I’d need to pay taxes on my new investments, I didn’t think too much about how exactly I was going to handle them.

After a few dozen purchases and trades I began keeping a spreadsheet with what I thought was all the necessary information: purchase dates, price (in both USD and the purchasing currency), amount purchased, etc. I kept this up for a couple of months, and while I was proud of my seeming responsibility, it was a time-consuming pain in the ass.

When 2018 came around I really started looking at tax regulations and realized my spreadsheet was only one piece of the puzzle. If I had only had a dozen or so trades, I would have fared just fine, but with over 200 trades, it was going to be an even bigger pain in the ass to calculate my realized gains and losses for the year.

So, I started searching for a service that could help me do my cryptocurrency taxes quickly and effectively, and that wasn’t too expensive. What I found was CoinTracking, which not only calculates my taxes quickly but also automatically tracks my portfolio for me year round and even syncs with a feature-filled mobile app.

But before I get into how CoinTracking works, let’s take a quick look at how cryptocurrencies are taxed.

How Are Cryptocurrencies Taxed?

Though I’ve done a fair amount of research into what is or isn’t a taxable event regarding crypto (in the US), remember that I am not a financial advisor and you should ask your accountant about how to incorporate crypto into your tax report.

Also, I found this episode of the Unchained podcast by Laura Shin particularly helpful for understanding cryptocurrency tax issues. If you haven’t yet listened to Unchained, start soon. It consistently features interesting and informative interviews with people from the blockchain space.

The General Rule of Thumb

The rule of thumb regarding cryptocurrency taxes is as follows: anytime you dispose of a cryptocurrency, it is a taxable event. So, if you sell a cryptocurrency for fiat (such as USD), it is a taxable event. Or if you trade your cryptocurrency for another cryptocurrency, it is a taxable event. Even if you use crypto to purchase something at a store, like a cup of coffee or a t-shirt, it is a taxable event.

The last example is absurd, and regulatory bodies will need to change it in the near future. Otherwise both crypto users and their tax accountants will be in for some major headaches as cryptocurrency adoption rises. But for now, we have to deal with it.

Furthermore, any time you dispose of a cryptocurrency, you must consider when you originally bought the cryptocurrency in order to determine if you have a long-term (greater than one year) or short term (less than a year) gain or loss, which are taxed differently; short-term gains are taxed as normal income, but long-term gains fall under capital gains tax rules.

You must also consider the cost basis, or the USD price you originally paid for your crypto. For example, if you trade Bitcoin for Monero, the USD price points at that time would be both the selling price for your disposed of Bitcoin (for example selling at $10,000) and the cost basis for the acquired Monero (for example buying at $300).

To make things even more complicated, if you have multiple purchases of a single crypto over time, there are a few different methods you can use to calculate your cost basis and your realized gains or losses.

And that doesn’t even cover the special cases of coins gained from airdrops, forks, mining, etc.

I didn’t want to deal with the calculations of 200+ trades, so I turned to CoinTracking. Not only did I have my cryptocurrency tax calculations done in less than two hours, but I also found my new go-to portfolio tracking app.

CoinTracking Overview & Why I Recommend It

1. CoinTracking easily links to your exchange accounts and wallets and automatically pulls data on a daily basis.

CoinTracking connects to a number of exchange accounts through an easy-to-set-up API, and the service even provides directions for each exchange to make API setup go as smoothly as possible.

CoinTracking Exchange & Wallet Import Support

In addition to the above list of exchanges and wallets, CoinTracking also supports importing transactions from hundreds of altcoin wallets. 

Now that my accounts are linked, CoinTracking automatically pulls my trade information on a daily basis from my accounts at Binance, Coinbase, GDAX, Bittrex, KuCoin, and Poloniex.

Also, I think it’s worth mentioning that CoinTracking only has access to see my accounts, and isn’t able to change any information.

2. Cointracking offers detailed portfolio reporting.
There are a multitude of ways to break down and analyze your trading history and portfolio evolution, including trade statistics, balance analysis, gains, etc.

CoinTracking Dashboard

This is just the main dashboard. Notice that there is an entire drop-down menu for reporting. If you visit CoinTracking’s site, you can test out the reporting options before signing up for the service.

3. CoinTracking offers easy tax reporting.

Once all of your trades have synced, it’s quite easy to generate tax reports and to compare reporting methods such as FIFO or LIFO. CoinTracking offers a total of 8 different tax reporting methods, allowing users from multiple countries to take advantage of the service.

Now that all of my accounts are linked, I will only need minimal setup to prepare next year’s tax reports.

CoinTracking offers a number of options for reporting cryptocurrency taxes

Notice the option to enter your individual tax rate in order to get a complete report with exactly how much you owe.

4. The mobile sync makes tracking your portfolio a breeze.

I have used both Blockfolio and Delta in the past, and I never enjoyed inputting my trades manually. So, even without the tax-reporting feature, I like using CoinTracking better because all of my trades are automatically added to my portfolio and are more accurately recorded.

However, there is one feature the CoinTracking app doesn’t support yet that both of my previous portfolio apps supported: a watchlist. But it’s easy enough to get this functionality from a range of other free apps.

CoinTracking Cost

Cointracking is free up to 200 transactions, and a two year PRO subscription costs around ~$75 each year, about on par with most tax software. They also offer unlimited and lifetime subscriptions, and discounts if you pay with BTC.

For me, the service is worth it for tax calculations alone, but I was pleasantly surprised at the other benefits… including never needing to update a mobile portfolio app again.

If you’re interested in using the CoinTracking service, use this link to receive a 10% discount on your subscription.

I also researched another major cryptocurrency tax service, Bitcoin.tax. While I have not used it to calculate my taxes, it also has positive reviews. Bitcoin.tax is free up to 20 trades, or $30/year up to 10,000 trades, and it requires a CSV upload from each exchange to track your trading activity.

To me, the differentiating factor is whether you are looking for a service that will link with exchanges, track your transactions daily, and have an accompanying app. If those services are valuable to you, go with CoinTracking. If you simply want to get your taxes done and don’t mind tracking your portfolio via other methods, go with Bitcoin.tax.

A Few Tips When Setting Up Your CoinTracking Account

Though CoinTracking provides easy-to-follow API setup instructions for each account, there are a few things I had to tweak to get my account fully set up.

CoinTracking can’t link to decentralized exchanges.

That’s right, you have to manually enter trades done through exchanges like EtherDelta or Shapeshift. The actual entry process doesn’t take long, but researching the trade data may take a few minutes.

Manual entry required for special cases like forks.

Coins received from airdrops or forks may need to be manually entered, and they should be entered with a $0 cost basis on the date you received them. Here are a few helpful dates:

BCH Fork August 1, 2017
BTG Fork November 12, 2017

To Fiat or Not?

If you have put fiat (USD, Euro) into cryptocurrency, you may need to manually enter a deposit for the amount of fiat you have invested, unless you want your portfolio to show a negative amount for fiat. This is probably just personal preference, but this will get rid of a negative “Total Value of Currencies” amount on your dashboard.

Altered settings if you want to link only exchange accounts and NOT wallets.

If you do not want to link all of your wallet addresses where you store your crypto, during API set-up you can choose to only allow CoinTracking access to your trade activity. If you allow CoinTracking to access deposits and withdrawals, your portfolio numbers may come back skewed as the coins were withdrawn and deposited into your private wallet.

Conclusion

For me, stumbling across CoinTracking was a pleasant surprise, and I can’t imagine using another service to handle taxes or track my portfolio on a day to day basis. But no matter how you decide to calculate your cryptocurrency taxes, be sure to take your taxes seriously; the IRS will definitely be paying attention to us in the coming years.