Crypto Tax Calculator: Simplifying Taxation in Cryptocurrency

Generally speaking, losses resulting from cryptocurrency trades are tallied against any gains made in the current year. However, first, all short-term losses are used against short-term gains, and second, all long-term losses are used against long-term gains. The net loss of either type can then be deducted against the other type of gain (i.e., short-term against long-term).

For example, if you have

1. 1. $5000 of short-term loss 

1. 1. $2500 of short-term gain

1. 1. $3000 of long-term loss

1. 1. $6000 of long-term gain

You sum the losses from the gains:

1. 1. Short-term: $2500 – $5000 = – 2500

1. 1. Long-term: $6000 – $3000 = 3000

Resulting in a $500 total long-term gain.

Figuring Out Your Crypto Cost Basis

General Investing

The basis of an asset is its cost to you (the amount you paid for it or the sale price at the time of purchase). This includes transaction costs—meaning exchange fees should be included when determining the basis.

Bitcoin As Income

The basis of a cryptocurrency received as income is a bit different. Since you didn’t pay anything, the initial basis is 0, however, you must declare the USD value of the amount received as ordinary income. For example, if you earned some bitcoins consulting, and at the time you were paid the BTC was worth $4000, that is your basis. Thus, your basis in cryptocurrency that was received (and reported) as income is the Fair Market Value (FMV) when you were paid.

As Gifts Or Inheritance

Gift recipients receive the gifter’s basis, so if a recipient receives a batch of crypto that was purchased for $1, and sells for $7000 upon receipt, the recipient has a $6999 gain per coin (which would likely be a capital gain). For inheritances, the recipient can elect to have a “step-up” in basis to the FMV at the time of inheritance, rather than the decedent’s purchase price.

Choosing An Accounting Method

When investors sell multiple assets with different bases, they can either choose to sell the crypto they’ve held the longest first (FIFO), or sell the newest ones first (LIFO). In theory, you can choose which method you would like to apply, however, many in the crypto-tax industry believe FIFO is the only appropriate treatment unless you can specifically identify which coin you are selling. Contact a tax professional if you don’t know how to calculate crypto taxes or for any other questions.

Keeping a Record of Your Crypto Transactions

You must keep track of your transactions and the corresponding tax lots to figure out your cryptocurrency gains for taxes. The list of tokens that were bought or otherwise obtained in a single trade is known as a tax lot.

You must include the following transaction details in a tax lot: 

• • Crypto assets sold or purchased

• • Fiat price and the date of purchase

• • Fiat price and the date of selling

Maintain a thorough record of all of your trades since it might be challenging to go back and connect the dots that may have contributed to overstated profits. The easiest answer to this problem is cryptocurrency tax software, which takes account of your activities seamlessly.

Cryptocurrency Tax Calculator: Tax-Loss Harvesting With A Crypto Tax Calculator

In general terms, losses resulting from cryptocurrency trades are tallied against any gains made in the current year. Note, however, that first short-term losses are applied against short-term gains and long-term losses are applied against long-term gains. The net loss of either type can then be deducted against the other type of gain (ie. Short term against long-term).

For example, if you have:

• • $5000 of short-term loss,

• • $2500 of short-term gain,

• • $3000 of long-term loss and

• • $6000 of long-term gain

You sum the losses from the gains

• •  Short term: $2500 – $5000 = –2500

• •  Long term: $6000 – $3000 = 3000

Resulting in a $500 total long-term gain.

Foreign Currency Reporting

Do you own $10k worth of cryptocurrency in one of the most popular foreign exchanges? Binance (Malta), Kucoin (Singapore), Bitfinex (Hong Kong, China), Jaxx (Canada), and Huobi (Korea) are widely used crypto investors in the US and abroad. If you do have (or had through the course of the year) $10,000 or more, you need to report that to the IRS.

According to the so-called “The Paul Manifort Rule,” holding over $10,000 in a foreign account or accounts at any point during the taxable year triggers a requirement to file Form 114 – Report of Foreign Bank and Financial Accounts (FBAR) with the Financial Crimes Enforcement Network (FinCEN). Note that although the filing deadline is the same as the tax return, the FBAR filing is not part of the tax return and is filed separately/directly with FinCEN. 

For crypto traders, this means that if your holdings at a non-US-based exchange exceed $10,000 at any given point of the year, you will need to file Form 114 with FinCEN. Further, if you have two foreign exchange accounts that each have a maximum of $5,001, then you still need to file an FBAR, since the aggregate is over $10,000.

As you can see, taxes on crypto are not an easy topic, and after reading this you probably don’t want to do it alone. Especially with the potential risk of being investigated by the IRS if something is not reported correctly.

This is where ZenLedger helps you calculate your crypto taxes: every transaction inside of every exchange and every wallet is evaluated and calculated accurately within minutes. 

So now you understand why you need a software solution to calculate your taxes. But what makes ZenLedger the best cryptocurrency tax software? Let’s talk about some of the features that make us the best crypto tax calculator.