CPAs: feel confident speaking the language of your crypto clients.
Airdrops are crypto coins given to you from unknown sources. For example, there could be coins available in your account that you never bought, provided for free by the exchanges you use. You will have to file income tax on an airdrop reception, and file a gain or loss when you sell the asset. The cost basis for the airdrop will be based on the fair market price of the asset at the time that the airdrop is received. ZenLedger accepts airdrop reception entries through it’s manual entry interface.
Any incoming transactions are broadly classified as a buy if the user directly invests US dollars to acquire the cryptocurrency.
Business or Investment:
This refers to buying, selling, or trading of cryptocurrency where the user buys cryptocurrency using their US dollars, trades among various crypto, or converts crypto to US dollars. Trades and sales are taxable, whereas a purchase (buy) of cryptocurrency is not taxable.
An “investment” or “investment segment” refers to holding a token for a time duration that causes capital gains or losses, and has a definite start and end date.
One “investment segment” may convert into one or two other “investment segments”. There may or may not be a taxable event when that occurs.
Sending half of a block of your ETH from Exchange #1 to Exchange #2 causes a split of one into two. It does not create a taxable event.
An external transfer of cryptocurrency is a transfer made between two different parties with different accounts or wallets.
There are multiple types of external transfers, such as a sale, donation, business expense, and more, and may be taxable depending on what type of transfer it is. For example, a sale is a taxable event, while a gift, donation, or business expense is not taxable but has tax implications.
Forks are the creation of a new cryptocurrency token from an existing one. In the case of forks, you could receive new crypto if you hold the original that the new crypto is forked from. These are taxable events. You will have to file income tax on the currency fork you receive, and file a gain or loss when you sell the asset. Cost basis for fork will be based on the Fair Market Price of the asset on the time the fork is received. ZenLedger accepts fork reception entries through its manual entry interface and selection from list of probable forks in app’s user flow.
A gift of cryptocurrency sent to somebody is nontaxable to a certain bar set by IRS. You may be required to fill out a gift form by the IRS. ZenLedger considers a gift sent as a nontaxable event.
These are the cryptocurrency a user receives as a gift. These are taxable events. You will have to file income tax on the currency you receive as a gift, and file a gain or loss when you sell the asset. Cost basis for a gift will be based on the fair market price of the asset at the time the gift was received. ZenLedger accepts gift reception entries through its manual entry interface.
Ignored transactions are those that do not appear in your tax calculation. Ignoring some transactions (especially deposits or trades) may affect your capital gains, as it may also omit the cost basis for transactions that use the asset produced by these ignored transactions.
Any incoming transaction where user did not directly invest US dollars is considered incoming. Incoming transactions must be reported in income taxes.
Initial Coin Offering (ICO):
These are cryptocurrency bought when the cryptocurrency first became available for purchase. These transactions usually do not appear in your exchange history and should be provided to ZenLedger using manual entry. Your purchase price in US dollars an ICO is considered the cost-basis, as you have to file a gain or loss when you sell the asset.
An investment is a fraction of an asset bought or sold that results in a capital gain or loss. These are mapped one-to-one in the Grand Unified Accounting sheet, and used to populate IRS tax form 8949.
When investors sell multiple assets with different bases, they can either choose to sell the crypto they’ve held the longest first (first-in, first-out, or FIFO), or sell the newest ones first (last-in, first-out, or LIFO). Note that FIFO is almost always used with regards to cryptocurrency, because unless you can specifically identify the cryptocurrency you are selling (which is nearly impossible, given that Bitcoin is essentially an abstraction), it is the treatment that must be used. See Treas. Reg. 1.1012-1(c)(2)-(4) for more information.
This is the cryptocurrency you lost in some reportable hazards. In this case, you may also have to fill out a lost/stolen IRS form. Reportable loss is based on fair market price of the cryptocurrency at the time it was bought or received.
Cryptocurrency obtained by mining is a taxable event. You will have to file income tax on mined cryptocurrency, and file gain or loss when you sell the asset. The cost basis for mines will be based on the fair market price of the asset at the time the crypto was mined. ZenLedger accepts mined entries through its manual entry interface.
Any outgoing transaction where the owner did not directly receive US dollars for the outgoing cryptocurrency is called outgoing
A self transfer of cryptocurrency is a transfer between two of your own accounts or wallets, such as a transfer of funds from your Coinbase account to your Binance account, or from your Exodus wallet to your Kucoin account. Self transfers are nontaxable events.
Any outgoing transactions are broadly classified as a sell if the user directly received US dollars from the cryptocurrency transaction.
Reportable steal is based on fair market price of the cryptocurrency at the time it was bought or received. In this case, you may also have to fill out a lost/stolen IRS form.
Any transaction that involves conversion of an asset from one crypto to another is broadly classified as a trade.
Payment received in the form of cryptocurrency is a taxable event. You will have to file income tax on a crypto payment you receive, andfile gain or loss when you sell the asset. Cost basis for payment received will be based on the Fair Market Price of the asset at the time payment is received. ZenLedger accepts payment reception entries through its manual entry interface.
A purchase occurs when you buy personal items using cryptocurrency, and is a taxable event. Any loss incurred from a personal purchase will be reported as zero; profits from a personal purchase will be taxed.