HOW TO TRACK YOUR BITCOIN (AND ALTCOINS) FOR TAXES
Did you know buying a coffee with Bitcoin is taxable? In fact, almost every transaction you make with cryptocurrency is taxable. AND YOU ARE RESPONSIBLE TO KEEP TRACK OF IT!
You probably stumbled upon this article because you were asking yourself "How do I keep track of my cryptocurrency transactions?" The answer to your question is...TokenTax. Keep reading to learn the best practices for tracking your cryptocurrency...plus three important tax saving strategies.
At first, tracking my Bitcoin transactions were simple. I simply made an excel spreadsheet and tracked a few key pieces of data. That was fine if I was only buying and holding cryptos. But when it came time for using cryptocurrency to buy products, services, or exchange them for any other cryptos, I quickly found that I needed better tracking methods. At least this is the conclusion that I came to.
Let me start by giving you an overview about how cryptocurrencies are taxed (United States).
How Are Bitcoin And Cryptocurrency Taxed?
In the United States, cryptocurrencies are treated as if they are property and are not recognized as a legitimate form of currency. Therefore, it is subject to capital gains tax which is similar to the way selling stocks or selling a rental home would be taxed. Basically if you transact a Bitcoin, and it is worth more than you paid for it, you owe tax on the difference. This applies to every cryptocurrency transaction you make, including small purchases of something like a candy bar or buying a product through an online store.
To complicate things further, capital gains tax also apply if you are exchanging Bitcoin for any other type of cryptocurrency. For example, if you exchange Bitcoin for Ethereum (or any other alt coin), you will need to consider the difference between the purchase price of your Bitcoin, and the price you sell your Bitcoin for when you exchange it for Ethereum.
With all of this complexity you quickly realize how annoying, and nearly impossible, it is to keep track of all these small details in an Excel spreadsheet. Who wants to buy stuff and then take time to record all those details?
P.S. The current tax situation is in my opinion one of the biggest reasons cryptocurrency hasn't been more widely adopted to this point. Read: "Is Crypto Going Mainstream?...And When?"
Disclaimer: I am not a tax advisor and am not here to offer tax advice. With that said, I have used TokenTax personally and am an enthusiastic affiliate for their services. I have researched several companies that provide crypto tracking, and tax services, but have found TokenTax to be the most reliable and easy to use.
What Is TokenTax?
TokenTax is a software that integrates with all of the major exchanges and cryptocurrency wallets in the marketplace. The software compiles all the transactions you make and puts them into an easy to read layout with the corresponding tax implications for each transaction.
Why Is This important?
Taxes are unavoidable! Many people incorrectly believe that they can avoid taxes by using cryptocurrency such as Bitcoin. This is no longer true, and will become even less true as time moves on. Governments are becoming more sophisticated with their ability to track, and tax, your cryptocurrency transactions. As new regulations are created they will most certainly aim to allow more government control of cryptocurrency taxes.
Wouldn't it make more sense to use a service that can help you simplify the process rather than having powerful government entities breathing down your neck? I certainly think so.
Just remember that each transaction you make with cryptocurrencies also comes with a tax repercussion.
Is TokenTax Only Available In The US?
No. TokenTax will accept customers from all countries and will convert data into any currency (not just the US Dollar). However, it is important to understand that the tax laws vary in every country and therefore may be a little different than what I have described in this article.
Three Important Tax Strategies...
FIFO, LIFO, and Minimization. TokenTax automatically evaluates your tax profile through each of these 3 tax methods allowing you to know which strategy will be best for your tax scenario. This is very helpful in helping you reduce tax liability.
Can I Combine TokenTax With My CPA Or Tax Software?
Yes. I currently have a CPA who handles my taxes and I was happy to learn that I could easily transfer data from TokenTax directly to my CPA who could then simply combine this information with rest of my tax portfolio.
In addition, TokenTax can be easily integrated with other tax software such as Turbo Tax to help you keep your tax reporting simple.
How Much Does It Cost?
There are three tiers of service each with varying degree of services depending on your needs.
For more specific details about each plan visit: www.tokentax.co
What Does Token Tax Do Well?
I like that they integrate with most of the largest exchanges, operate in many different countries, and take into consideration long-term and short-term tax strategies. Most of the information is imported and highly automated. They can also import information from your crypto wallets and information can also be sent directly to accountants. Files can be uploaded CSV or just automatically downloaded from exchanges.
What Are The Limitations Of TokenTax
It is mainly a tax tool and there will be no portfolio or investment advice given. Also, the basic services are great for a beginner but you will definitely need a higher package if you are doing a large amount of transactions or using many different exchanges to complete your transactions.
Can TokenTax Handle Taxes For Miners And ICO's?
Yes. In addition, they have a service that can help you find past taxes from many years ago. This is helpful for someone who may not have reported in the past but would like to get into compliance.
About The TokenTax Team
This is a US Based company with experienced accountants, designers, software engineers, and finance professionals.
Who is their competition?
Cryptotrader. Tax, Bitcoin. Tax, Libra tax.com, coin trading.com
Tax evasion is not a good strategy! Bitcoin and other cryptocurrencies have a bright future but will likely be carefully watched by governments who want to get their slice of the pie. In my opinion, it is far better to use a service like TokenTax, and be in good financial standing, than to be in the cross hairs of powerful governments. Therefore, it is important to have a strong tax strategy when it comes to your cryptocurrency portfolio. Be sure to do your due diligence and seek solid professional advice when making tax decisions. I hope you have found this article to be helpful!
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