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Shutterstock: CryptocurrencyShutterstock
If you have multiple cryptocurrency transactions (coins), consider a commercial accounting solution dedicated to coin transactions. The program should calculate taxable income and losses based on the IRS rules for currency transactions. It should generate capital gains and losses reports to support the 8949 form and "other income" statements. The program must take into account all coin transactions, including currency transactions, coin transactions, receiving coins in a fork or a split transaction, purchases of goods or services carried out with a currency and the mining revenue.
I examined two coin counting solutions that fit the bill: Bitcoin.Tax and CoinTracking.Info. Both programs provide options for different results and, in general, stick to the default method to avoid potential IRS problems. (To see& Nbsp;How Criptovaluta investors can overcome the IRS attack).
Exchanges of coins do not provide reports on taxable income
Do not look at your coin exchange for a great help with tax reporting. They do not maintain basic cost information and can not provide users with online tax reports. A currency is not a "covered security" for the issue of Form 1099-B, so coin investors and IRS do not receive a 1099-B.
Coin investors are responsible for generating their accounting and tax reports. With uncertainty about tax treatment due to the lack of sufficient IRS guidance, many money-market traders end up underestimating taxable income on money transactions. In most cases, it may be involuntary, but sometimes it is intentional. The use of accounting software shows an attempt to comply.
The IRS is pursuing coin investors
The IRS has served a "John Doe" (the worst kind) convocation to the most important coin exchange, Coinbase, to obtain its client list for investors and traders with coin transactions worth more than $ 20,000. The IRS calculated that less than 900 taxpayers reported gains or losses on capital on currency transactions in 2015, an alarming number.
With the prices of coins skyrocketing in 2017, the US Treasury wants tax revenue – its share of unexpected gains. Perhaps this is why they have labeled money as "intangible property" rather than as currency. There would be no taxable income or loss on the use of money.
Bitcoin.Tax
I spoke with the owner of& Nbsp;Bitcoin.Tax& Nbsp;(BT), Colin Mackie, who described his program in detail. Here's what I learned.
"Most coin exchanges allow you to download your account history as a CSV file, so BT imports it," he said. "BT also has an API solution that works with some coin exchanges like Coinbase and Gemini, to be downloaded directly to BT."
Mackie said the program produces various downloads for capital gains, such as PDF Form 8949, the 8949 attachable statement, the TurboTax import, the TaxACT import and the simple CSV.
"By income, it's a summary of revenue and money mines as CSV," he said. "For exchanges of the type 1031 of the section, it is a declaration of the appropriate lines from the form 8824, one line per operation".
BT's default method is to report capital gains and losses on coin-to-coin transactions such as Bitcoin trading for Ethereum. I suggest that our customers use this default treatment to comply with IRS rules. The program offers an option to postpone income and losses on all coin exchanges by processing such exchanges as similar exchanges to Section 1031. If you select the exchange option of the similar type, the BT program delays all taxable income or loss on these transactions for the full year until the user sells currency for the currency. Mackie said some accountants have requested this option, but I strongly advise our customers not to do so. (To see& Nbsp;Cryptocurrency traders risk IRS problems with similar exchanges.)
Mackie advises BT users to pay close attention to hard fork transactions, such as when Bitcoin distributes Bitcoin Cash.
"The exchange of coins shows an addition to the coin balances for the distribution of rigid forks, but some do not include the new currency received in commercial activities," he said. "Sometimes BT picks it up automatically, otherwise it requires the user to add the new coin manually.The user can enter the new currency as income using the daily price at the fork date. the ability to enter zero based on cost. "
Sometimes a user does not receive a constructive receipt of the new currency, or the new currency does not have a negotiation price on the day received. Report it as taxable income once accepted if you can determine its value. (See How to Report Money in Bitcoins and Avoid Problems with the IRS.) BT offers a broad selection of accounting methods, which calls basic methods, and I'm not sure that everyone will go through with the & # 39; IRS. BT offers FIFO, LIFO, average cost and specific identification.
Mackie says that the specific identification method "uses the strategies so that the user can select the lowest cost, the highest cost or the closest cost, where the program finds the best match to minimize the gains in capital account. " There seems to be too much icing after the end of the year. I think users should use acceptable accounting methods and select them in writing before they start the year.
I suggest that our customers use FIFO to stay away from the danger with IRS. This feature of the program of greater choice of the basic method naturally leads to greater deferral of income and will attract more attention to the IRS.
That said, I think BT is an economic accounting solution that can work well for American taxpayers, as long as they remain free of non-compliant options to postpone income. Make sure the program captures all transactions from the exchange of coins.
BT is free up to 100 transactions and charges $ 19.95 a year when users exceed 100 entries.
CoinTracking.Info
CoinTracking.Info& Nbsp;it's another accounting solution to consider. I spoke with CoinTracker founder and CEO Dario Kachel to find out more about this program. According to Kachel, CoinTracking is the only service with current and historical prices for all 4,878 coins on the market.
RG: Does CoinTracking (CT) generate a report on capital gains and losses for US dollar investors in accordance with US tax law?
DK: Yes, it does. CoinTracking creates US-compliant tax reports such as capital gains and losses on Form 8949, other income reports, gift and donation reports, lost or stolen reports and closing position. Reports can be exported in many formats such as Excel, CSV, PDF and even in standard forms such as Form 8949, Statement for IRS, TaxACT and TurboTax.
RG: CT takes into account all coin transactions, including currency transactions, coin transactions, receiving heavy-denominated coins or split transactions, and every time a coin investor buys goods or services using a coin?
DK: Yes. We support all your mentioned transactions, which are necessary for a proper capital gain. In addition, we manage extracted coins, income (eg a salary in criptos), gifts, donations and coins lost or stolen.
RG: On coin-to-coin transactions, such as trading on Bitcoin for Ethereum, does CoinTracking report a capital gain on the sale of Bitcoin?
DK: Yes, it does. All coin transactions will be calculated based on the cost basis and the value of the proceeds of the encrypted at the time of the transaction converted into USD or any other FIAT currency.
RG: on coin-to-coin trading, does CT offer the possibility to use a "standard exchange" to defer income from capital gains?
DK: The option for type calculations on CoinTracking is already underway and we will publish it in December 2017. But as you said, coin investors do not qualify for such exchanges, and there are no other countries that support officially as – Specific calculations (which we know at this time).
RG: for coin forks or cracks, does the CT account receive the new currency and report its fair market value or the initial dealing price as market value? Does the program report other income or capital gains?
DK: There are two ways (for our program) to calculate bifurcated coins. The easiest way is to imagine them with their fair market value. The other way is to set the cost base of both coins at the fork date based on the currency distribution. For example, the BTC / BCH division was a 90:10 division. This would mean that all your new BCH coins will receive a cost basis of 10% of the BTC cost base.
RG: In& Nbsp;How to report Bitcoin cash and avoid IRS problems, I also suggest two options.
RG: Do you offer the user the choice of accounting method after the fact, so that they choose which one is best for them in a given fiscal year? (We frown on that practice, as pointed out in my last blog post, as investors of Cryptocurrency can overthrow the IRS attack.)
DK: Yes, users can change the accounting method as often as they want. We also provide an instant cash calculator, where users can estimate their earnings / losses and taxes even before the sale of goods.
The CT website states that it offers various accounting methods including FIFO, LIFO, HIFO and LOFO.
CT is free for up to 200 transactions and charges $ 325 "for lifetime use" when users exceed 200 entries. "The CT also offers more imports from other suppliers, margin operations, borrowings and borrowed coins," says Kachel.
Investors and coin dealers are facing a minefield of IRS problems on a wide range of tax accounting problems. Non-compliance is rampant and the IRS is on the case. Take your best step forward by using one of these accounting solutions and do not use the features that can get you into trouble like type exchanges.
postscript: & nbsp; IRS requires the method of accounting for "specific identification" (SI) for the use of property sales, including intangible assets (coins). The IRS regulations for the SI require "an adequate identification" of the lots sold on a contemporary basis, and I do not believe that most of the coin dealers comply with these rules. In June 2016, & nbsp;AICPA& nbsp; asked the IRS if coin dealers could use & nbsp; "first in first out" (FIFO) & nbsp; as an alternative solution, which the IRS allows for titles. Unless the SI rules are followed, I suggest using the FIFO accounting method for coins. (See & nbsp;Accounting method Impact Taxes of encrypted income.)
Contact& Nbsp;me with questions.& Nbsp;
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Shutterstock: CryptocurrencyShutterstock
If you have multiple cryptocurrency transactions (coins), consider a commercial accounting solution dedicated to coin transactions. The program should calculate taxable income and losses based on the IRS rules for currency transactions. It should generate capital gains and losses reports to support the 8949 form and "other income" statements. The program must take into account all coin transactions, including currency transactions, coin transactions, receiving coins in a fork or a split transaction, purchases of goods or services carried out with a currency and the mining revenue.
I examined two coin counting solutions that fit the bill: Bitcoin.Tax and CoinTracking.Info. Both programs provide options for different results and, in general, stick to the default method to avoid potential IRS problems. (To see How cryptocurrency investors can topple the IRS attack).
Exchanges of coins do not provide reports on taxable income
Do not look at your coin exchange for a great help with tax reporting. They do not maintain basic cost information and can not provide users with online tax reports. A currency is not a "covered security" for the issue of Form 1099-B, so coin investors and IRS do not receive a 1099-B.
Coin investors are responsible for generating their accounting and tax reports. With uncertainty about tax treatment due to the lack of sufficient IRS guidance, many money-market traders end up underestimating taxable income on money transactions. In most cases, it may be involuntary, but sometimes it is intentional. The use of accounting software shows an attempt to comply.
The IRS is pursuing coin investors
The IRS has served a "John Doe" (the worst kind) convocation to the most important coin exchange, Coinbase, to obtain its client list for investors and traders with coin transactions worth more than $ 20,000. The IRS calculated that less than 900 taxpayers reported gains or losses on capital on currency transactions in 2015, an alarming number.
With the prices of coins skyrocketing in 2017, the US Treasury wants tax revenue – its share of unexpected gains. Perhaps this is why they have labeled money as "intangible property" rather than as currency. There would be no taxable income or loss on the use of money.
Bitcoin.Tax
I spoke with the owner of Bitcoin.Tax (BT), Colin Mackie, who described his program in detail. Here's what I learned.
"Most coin exchanges allow you to download your account history as a CSV file, so BT imports it," he said. "BT also has an API solution that works with some coin exchanges like Coinbase and Gemini, to be downloaded directly to BT."
Mackie said the program produces various downloads for capital gains, such as PDF Form 8949, the 8949 attachable statement, the TurboTax import, the TaxACT import and the simple CSV.
"By income, it's a summary of revenue and money mines as CSV," he said. "For exchanges of the type 1031 of the section, it is a declaration of the appropriate lines from the form 8824, one line per operation".
BT's default method is to report capital gains and losses on coin-to-coin transactions such as Bitcoin trading for Ethereum. I suggest that our customers use this default treatment to comply with IRS rules. The program offers an option to postpone income and losses on all coin exchanges by processing such exchanges as similar exchanges to Section 1031. If you select the exchange option of the similar type, the BT program delays all taxable income or loss on these transactions for the full year until the user sells currency for the currency. Mackie said some accountants have requested this option, but I strongly advise our customers not to do so. (To see Cryptocurrency traders risk IRS problems with similar exchanges).
Mackie advises BT users to pay close attention to hard fork transactions, such as when Bitcoin distributes Bitcoin Cash.
"The exchange of coins shows an addition to the coin balances for the distribution of rigid forks, but some do not include the new currency received in commercial activities," he said. "Sometimes BT picks it up automatically, otherwise it requires the user to add the new coin manually.The user can enter the new currency as income using the daily price at the fork date. the ability to enter zero based on cost. "
Sometimes a user does not receive a constructive receipt of the new currency, or the new currency does not have a negotiation price on the day received. Report it as taxable income once accepted if you can determine its value. (See How to Report Money in Bitcoins and Avoid Problems with the IRS.) BT offers a broad selection of accounting methods, which calls basic methods, and I'm not sure that everyone will go through with the & # 39; IRS. BT offers FIFO, LIFO, average cost and specific identification.
Mackie says that the specific identification method "uses the strategies so that the user can select the lowest cost, the highest cost or the closest cost, where the program finds the best match to minimize the gains in capital account. " There seems to be too much icing after the end of the year. I think users should use acceptable accounting methods and select them in writing before they start the year.
I suggest that our customers use FIFO to stay away from the danger with IRS. This feature of the program of greater choice of the basic method naturally leads to greater deferral of income and will attract more attention to the IRS.
That said, I think BT is an economic accounting solution that can work well for American taxpayers, as long as they remain free of non-compliant options to postpone income. Make sure the program captures all transactions from the exchange of coins.
BT is free up to 100 transactions and charges $ 19.95 a year when users exceed 100 entries.
CoinTracking.Info
CoinTracking.Info it's another accounting solution to consider. I spoke with CoinTracker founder and CEO Dario Kachel to find out more about this program. According to Kachel, CoinTracking is the only service with current and historical prices for all 4,878 coins on the market.
RG: Does CoinTracking (CT) generate a report on capital gains and losses for US dollar investors in accordance with US tax law?
DK: Yes, it does. CoinTracking creates US-compliant tax reports such as capital gains and losses on Form 8949, other income reports, gift and donation reports, lost or stolen reports and closing position. Reports can be exported in many formats such as Excel, CSV, PDF and even in standard forms such as Form 8949, Statement for IRS, TaxACT and TurboTax.
RG: CT takes into account all coin transactions, including currency transactions, coin transactions, receiving heavy-denominated coins or split transactions, and every time a coin investor buys goods or services using a coin?
DK: Yes. We support all your mentioned transactions, which are necessary for a proper capital gain. In addition, we manage extracted coins, income (eg a salary in criptos), gifts, donations and coins lost or stolen.
RG: On coin-to-coin transactions, such as trading on Bitcoin for Ethereum, does CoinTracking report a capital gain on the sale of Bitcoin?
DK: Yes, it does. All coin transactions will be calculated based on the cost basis and the value of the proceeds of the encrypted at the time of the transaction converted into USD or any other FIAT currency.
RG: on coin-to-coin trading, does CT offer the possibility to use a "standard exchange" to defer income from capital gains?
DK: The option for type calculations on CoinTracking is already underway and we will publish it in December 2017. But as you said, coin investors do not qualify for such exchanges, and there are no other countries that support officially as – Specific calculations (which we know at this time).
RG: for coin forks or cracks, does the CT account receive the new currency and report its fair market value or the initial dealing price as market value? Does the program report other income or capital gains?
DK: There are two ways (for our program) to calculate bifurcated coins. The easiest way is to imagine them with their fair market value. The other way is to set the cost base of both coins at the fork date based on the currency distribution. For example, the BTC / BCH division was a 90:10 division. This would mean that all your new BCH coins will receive a cost basis of 10% of the BTC cost base.
RG: In How to report money in Bitcoin and avoid problems with IRS, I also suggest two options.
RG: Do you offer the user the choice of accounting method after the fact, so that they choose which one is best for them in a given fiscal year? (We frown on that practice, as pointed out in my last blog post, as investors of Cryptocurrency can overthrow the IRS attack.)
DK: Yes, users can change the accounting method as often as they want. We also provide an instant cash calculator, where users can estimate their earnings / losses and taxes even before the sale of goods.
The CT website states that it offers various accounting methods including FIFO, LIFO, HIFO and LOFO.
CT is free for up to 200 transactions and charges $ 325 "for lifetime use" when users exceed 200 entries. "The CT also offers more imports from other suppliers, margin operations, borrowings and borrowed coins," says Kachel.
Investors and coin dealers are facing a minefield of IRS problems on a wide range of tax accounting problems. Non-compliance is rampant and the IRS is on the case. Take your best step forward by using one of these accounting solutions and do not use the features that can get you into trouble like type exchanges.
postscript: The IRS requires the method of accounting for "specific identification" (SI) for the use of property sales, including intangible assets (coins). The IRS regulations for the SI require "an adequate identification" of the lots sold on a contemporary basis, and I do not believe that most of the coin dealers comply with these rules. In June 2016, AICPA asked the IRS if coin dealers could use "first in first out" (FIFO) as an alternative solution, which the IRS allows for securities. Unless the SI rules are followed, I suggest using the FIFO accounting method for coins. (See Accounting Method Impacts on Encrypted Income Taxes).
Contact me with questions.
