Most cryptocurrency taxes are based on any capital gains you have from trading crypto: how much you made, minus how much you spent. But what if you made less than you initially spent — what if you only have losses?

Obviously, you won’t be taxed on a negative amount of money, but it’s important to include the full report on your tax return anyway. Let’s talk about why.

Reporting losses can prevent tax headaches

Did you know that almost every cryptocurrency exchange in the US reports information to the IRS? And did you know that most of the information being reported paints a very inaccurate picture of your capital gains?

This video explains a scenario we’ve seen countless times, where the IRS sends someone a monumental tax bill based on incomplete information:

It’s up to you, the taxpayer, to prove the amount of tax that you owe (or don’t owe). You need to report each of your cryptocurrency transactions for the tax year, demonstrating that you had an overall capital loss. Software like Bitcoin.Tax helps you build a report with everything you need.

When you’ve properly reported, you can avoid a tax nightmare like the one described above.

Reporting losses can save you money

Capital losses can be used to offset your capital gains, even outside of cryptocurrency investments. If you have capital gains from stock trades, for example, your cryptocurrency losses can count against that, effectively lowering your tax bill.

You can even use capital losses to offset up to $3,000 of ordinary income per year. Additional losses can be carried forward to future years. So if you’re looking to minimize your tax liability, reporting cryptocurrency losses on your tax return is a no-brainer!

Have more questions about your cryptocurrency tax return? Get personalized advice from a crypto tax attorney and CPA using our full-service tax preparation service.

Andrew Gordon is a cryptocurrency tax lawyer and Certified Public Accountant who has practiced cryptocurrency tax law since 2014. His firm, Gordon Law Group, has helped hundreds of virtual currency investors reconcile their crypto transaction data, file tax returns, amend previous returns, and fight crypto-related audits and tax bills.

Most of the time, acquiring cryptocurrency is not in itself a taxable event: It’s only when you sell the crypto for fiat, trade it for another type of coin, or use it purchase something that you have a taxable event to report.

However, there are several situations where cryptocurrency is considered income by the IRS. And in those cases, acquiring the crypto is taxable.

When is cryptocurrency considered income?

The follow types of crypto activity create taxable income:

• Mining
• Earning staking rewards
• Receiving coins in an airdrop
• Being paid for goods or services

How to report cryptocurrency income

Cryptocurrency income could be reported on Schedule 1, Schedule B, or Schedule C of your tax return. It depends on the type of activity and other situational factors; we recommend consulting a tax professional if you have questions about where to report specific income.

Whichever form you use, you’ll report the fair market value of the cryptocurrency you received at the time that you received it. It will be taxed at your normal income tax rate, just as if you had received payment in USD.

With staking rewards, you may be earning a small fraction of cryptocurrency coins every day, every hour, or every few minutes. Unfortunately, each of those deposits must be reported individually.

Income transactions in Bitcoin.Tax

If you’ve imported trades and some of those transactions are actually income, you can mark them as such and they’ll be moved to the Income tab of your Bitcoin.Tax account. You can also load income transactions by connecting to BitPay, Coinbase Commerce, or other accounts, or add income deposits manually.

Bitcoin.Tax will produce a downloadable report that you can attach to the proper form (Schedule 1, Schedule B, or Schedule C).

Future transactions with cryptocurrency income

Let’s say that you’re a freelance web designer who received 1 ETH as payment for a project; at the time, it was worth $1,000. You reported that $1,000 as income for the tax year in question. Now, what if you want to sell the ETH 2 years later?

The amount that you reported as income—in this case, $1,000—is considered your cost basis. If you sell the ETH for $1,200, you’ll have a capital gain of $200 to report.

Have more questions about your cryptocurrency tax return? Get personalized advice from a crypto tax attorney and CPA using our full-service tax preparation service.

Andrew Gordon is a cryptocurrency tax lawyer and Certified Public Accountant who has practiced cryptocurrency tax law since 2014. His firm, Gordon Law Group, has helped hundreds of virtual currency investors reconcile their crypto transaction data, file tax returns, amend previous returns, and fight crypto-related audits and tax bills.

With crypto prices soaring, and onramps to trading more plentiful than ever, there are a lot of new people joining the crypto trading space. As a result of this, it's never been a better time to go back over the basics of crypto taxation! One of our full-service tax professional partners, Andrew Gordon, shares valuable tax information about crypto to crypto trading in today's guest blog post.

Many of our customers want to know if trading crypto for crypto — aka, exchanging or trading different types of virtual coins — is taxable. The answer is yes.

Example: You decide to use some of your Ethereum to purchase 1 Litecoin. From a tax perspective, it’s as if you sold the ETH for fiat, and then used fiat to purchase the Litecoin. Since the ETH was “sold,” you will have a capital gain or loss on the transaction, depending on your initial cost basis.

Why is it taxed this way?

The IRS has defined cryptocurrency as property, similar to stocks or real estate investments. Each type of cryptocurrency is considered a separate asset. So when you use cryptocurrency in a transaction—even trading one type of crypto for another type—it’s as if you sold your crypto for USD and then used USD to complete the transaction.

How to calculate the proceeds on a crypto-to-crypto trade

Most cryptocurrency transactions are reported on tax form 8949, Sales and Other Dispositions of Capital Assets. This form requires the following information for each transaction: Cost basis, date acquired, date sold, and sales proceeds.

Let’s go back to the example of converting a portion of Ethereum to 1 Litecoin. If you never actually cashed out, how do you know the sales proceeds for your “sale” of ETH? In this case, the fair market value of Litecoin in USD at the time of the transaction would be your sales proceeds. Bitcoin.Tax will automatically record the correct amount for your report.

What about like-kind exchange?

Although many crypto investors argue that simply exchanging one cryptocurrency for another should count as a like-kind exchange, the IRS has definitively stated that this is not the case.

Like-kind exchange is a tax-deferment method used most commonly in real estate. It allows the investor to exchange one asset for a similar one (i.e. selling one rental property and using the funds to purchase another rental property) without realizing a capital gain on the sale of the first asset.
The IRS has issued guidance stating that for tax year 2018 onward, like-kind exchange does not apply to cryptocurrency.

For tax years 2017 and earlier, you could try to argue to the IRS that like-kind exchange should apply to your crypto-to-crypto transactions. However, we’ve never seen this argued successfully. Cryptocurrency transactions typically don’t meet the requirements of a bona fide like-kind exchange, such as swapping the assets through a qualified intermediary.

Have more questions about your cryptocurrency tax return? Get personalized advice from a crypto tax attorney and CPA using our full-service tax preparation service.

Andrew Gordon is a cryptocurrency tax lawyer and Certified Public Accountant who has practiced cryptocurrency tax law since 2014. His firm, Gordon Law Group, has helped hundreds of virtual currency investors reconcile their crypto transaction data, file tax returns, amend previous returns, and fight crypto-related audits and tax bills.

The IRS opened e-filing for US taxpayers on January 27, 2020, and you can now use a number of free and paid online services to file taxes.

Crypto users have seen a mixed year of gains and losses, depending on if, and when, trading was done through the year. Whether you had gains or losses, you will still need to file your cryptocurrency activity and calculate any capital gains or losses.

IRS Updates

We have seen much more activity from the IRS this year. First, sending out CP 2000 notices as well as 6173, 6174 and 6171-A letters to taxpayers in August, reminding them that any cryptocurrency transactions must be reported.

Secondly, their new FAQ On Virtual Currency Transactions was released, which confirmed a lot of the approaches that are currently being used, while also clarifying treatment of fair market value and specific identification.

Lastly, we saw the new 1040 Schedule 1, which for 2019 now includes a specific crypto question, "At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in virtual currency?"

For an interesting discussion on this topic, please listen to our upcoming podcast with Matt Metras, a cryptocurrency taxation specialist and EA, where he discusses this question and the responses he received from the author of the IRS FAQ. (to be released on 2/7/2020)

Fair Market Value and Spot Pricing

The new IRS FAQ has gone into detail about pricing and clarified how Fair Market Value (FMV) should be determined.

The rules are:

1. Use the reported price (by the exchange) in the actual trade
2. Use the spot price at that date and time as if the trade had happened on the exchange
3. Use a global price index for the spot price at that date and time.

When trading is done for fiat on exchanges, then rule #1 is going to be used because the exchange will report the exact fiat pricing they used. Similarly, when spending or receiving income, the FMV is the value of the goods or services that were traded, which is usually known.

However, when crypto is traded for other crypto, then the other rules need to be used. When you trade crypto, you are disposing of one asset and acquiring another. If you think of this as being made of two parts, then the first means you are disposing of an asset for fair market value and the second is acquiring crypto for that same value.

Say you owned 1 BTC that you previously bought for $5,000. You then trade your 1 BTC for 50 ETH. You are disposing of your 1 BTC for its fair market value - if the spot price at that time was $8,500, means your gain is $3,500 (less any fees). This also sets the cost basis for the acquired 50 ETH ($70 each).

If this trade was made on some exchange, then we need to know the spot price of BTC at that trade's date and time, as if it happened on the exchange (rule #2). Some exchanges will report the USD pricing but most do not. Therefore, we need to look up the exchange's price history tables to find the spot price at that time.

If the trade did not happen on a known exchange, or where pricing is not available, then we can use a global price index (rule #3) to find the value of BTC at that time.

Bitcoin.Tax has maintained price history tables for cryptocurrencies since we started in 2013 (with tables back to 2010). We have prices for around 20,000 trading pairs with around 6,000 different crypto symbols.

Bitcoin.Tax tracks trading data from over 130 exchanges to be able to give spot prices for any coin. If you made the BTC to ETH trade above, we will look up the exchange's exact spot price at that time.

It also maintains a global index of crypto pricing, built from the values from valid exchange pair trading. This will be used if an exchange is not known or spot pricing is not available.

This ensures that we can use the most accurate pricing, relevant to an exchange as well as to the nearest second. You can also read our support article for more details on how Bitcoin.Tax retrieves its crypto prices.

Specific Identification

One of the new clarifications in the IRS FAQ was around if specific identification was allowed. Before this, some tax professionals might be more cautious and suggest that using first-in first-out (FIFO) would be a safer approach, since it was the default method of the IRS.

Also, selectively picking which asset to sell could be seen as being done purely to avoid taxes and so violating the economic substance doctrine. It can also be difficult to achieve, due to the fungible nature of a crypto wallet.

However, the IRS has clarified that specific identification can be used if you can document the specific unit's unique identifier (such as private key, public key, address, or all transactions for that specific wallet), and then for each unit to be able to show: the date and time it was acquired; basis and fair market value when it was acquired; when it was disposed; and, fair market value when it was disposed and the amount received.

This can be more difficult when you have traded on an exchange, because there is no public key or address, as the exchange keeps your assets at an account level rather than on the blockchain. However, each trade should have an associated unique trade identifier for an account, that should be able to be used to document all your acquisitions and disposals.

Being able to track acquiring and disposal transactions and IDs was requested by tax professional following the IRS new FAQ this year. This allows them to be able to satisfy the new requirements and provide more information to the IRS upon request.

Bitcoin.Tax tracks the wallet transaction IDs or exchange's trade IDs for any acquisitions or disposals, and these are included in the standard downloadable capital gains reports.

The user can also enter this ID manually (if they are not normally available from data imports). If no ID exists, Bitcoin.Tax will create its own from the provided data.

Downloading the Capital Gains CSV report will provide the disposing account and id (trade id, transaction hash, or internal id) as well as the acquiring account and id.

The acquiring account and ID is also available in the Closing report, where your remaining balance assets are described.

Bitcoin.Tax is the leading capital gains and income tax calculator for Bitcoin and cryptocurrencies. You can sign up for free at https://bitcoin.tax/signup.

BitcoinTaxes gives you up to $15 off when purchasing TurboTax when clicking our link below.

BitcoinTaxes does not provide financial, tax planning or tax advice. Please speak to your own tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.

The IRS has issued their long-awaited guidance on the tax treatment for cryptocurrencies. You can read their FAQ On Virtual Currency Transactions on the IRS website.

This is the first official guidance since the original 2014-21 notice in April 2014.

tl:dr;

• Crypto is still subject to capital gains.
• Airdrops and forks are income on controllable receipt at Fair Market Value (FMV). If you didn't have control, you don't have income.
• FMV should be taken from the traded exchange, source or value of received services and not external sources, such as price aggregators. FMV for an off-chain transaction is the value it would have had if it was traded on the exchange.
• Peer-to-peer or other transactions use FMV from a source that analyzes worldwide indices to calculate a value at that date and time. Or, you can use an accurate representation of the FMV.
• Specific Identification is allowed (not just FIFO) when it can be documented. [new]
• Gifts are not income and giftee can use the documented gifted basis for gains (but not losses).
• Transfers are not tax events.

Generally, this is the same as the advice and common practice used by taxpayers and accountants. Although, the exception here is the clarification of the specific identification rule. We'll talk about that below.

Podcast: Analyzing The 2019 Crypto Tax Guidelines

Listen to our recent podcast with Tyson Cross, a tax attorney specializing in crypto taxation, to go over this new FAQ in much more detail.

List to this episode: Analyzing The 2019 Crypto Tax Guidelines

IRS Cryptocurrency Tax FAQ

We have gone into more detail for some of the main points in their FAQ.

Hard forks and airdrops

Despite peculiar wording by the IRS, they have confirmed that receipt of crypto from an airdrop or fork is to be treated as income, and so subject to income tax.

ordinary income equal to the fair market value of the new cryptocurrency when it is received, which is when the transaction is recorded on the distributed ledger, provided you have dominion and control over the cryptocurrency so that you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency

However, these drops typically have no market (perhaps a futures market) until they have existed for a period of time, so establishing a value could be difficult. It is possible that the value could be zero right at that exact moment it is recorded on the distributed ledger.

In order to receive income, you must have dominion and control over these new crypto. This effectively means you must be able to manage it; typically you would have the private keys or it is immediately available in a custodial wallet or online account, e.g. Coinbase.

If the crypto doesn't appear in your wallet, or you don't get control of it until a later date, then that later date is used to calculated the USD income value.

This had been a common question among crypto traders: if BTC was forked off into a new "BTC" coin, which you might not even have been aware of, do you still have income? The answer is no. Unless, you subsequently get access to those new coins, in which case you do have income on the date you receive control.

When you have income for an airdrop or fork, this also sets the cost basis (value and date) for any subsequent capital gains calculations.

Bitcoin.Tax already looks up any current value, if known, for forks or airdrop symbols when they are added to the Income tab, otherwise a zero basis is used.

Fair Market Value (FMV)

FMV is used to give something a value, i.e. what it's worth. If you list a bike for sale, you might research the prices for which other people are selling. Those prices give a FMV. But it you sell your bike and someone buys it for $100, then the bike's FMV was $100.

With crypto, sometimes we need to know FMV because we are not trading directly for dollars.

For example, if you sell 1 BTC for 150 LTC, you are disposing of the 1 BTC at FMV. You need to know the USD value in order to know the proceeds and to calculate any capital gains or losses.

So, first, if this was traded on an exchange, we use the spot price on the exchange at that time. This is true even if the transaction was off-chain.

However, where no FMV exists, such as a peer-to-peer transaction, then you have to get the value from elsewhere.

So, secondly, use the FMV of the service or product you are exchanging. With the above bike example, say buying it with crypto, the FMV would be that of the bike itself (the price it would have sold for USD).

Lastly, when no value can be obtained, then use a service that provides a consistent worldwide indices value (the IRS are calling this an "explorer" but that is a confusing term as blockchain explorers may not provide a USD value). If you do not use an "explorer" value, you can use an "accurate representation of the cryptocurrency's market value". Much like with fiat, this means using an established and consistent source.

Bitcoin.Tax already uses the exchange price data wherever possible, but otherwise combines crypto pricing for multiple worldwide sources to calculate a FMV.

FIFO and Specific Identification

Advice from most tax preparers and accountants has been to err on the side of caution and go with First-In First-Out (FIFO). Basically, if you bought 1 BTC for $9,000 and later another for $10,000, when you come to sell 1 BTC (or partial) you would use the cost of the first 1 BTC that you had acquired.

This is the default IRS cost basis method and would not be challenged.

This is the biggest change in the new IRS guidance and confirms that specific identification can be used. However, you must be able to document this, which the IRS describes as:

You may identify a specific unit of virtual currency either by documenting the specific unit’s unique digital identifier such as a private key, public key, and address, or by records showing the transaction information for all units of a specific virtual currency, such as Bitcoin, held in a single account, wallet, or address.

This information must show (1) the date and time each unit was acquired, (2) your basis and the fair market value of each unit at the time it was acquired, (3) the date and time each unit was sold, exchanged, or otherwise disposed of, and (4) the fair market value of each unit when sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit.

There is no guidance if any extra information should be reported, but it is generally the same information that is added to the 8949 form where capital gains are reported.

Some taxpayers had filed using specific identification, where FIFO was not used and instead the "lot" that was sold was chosen from their wallets. Strategies could be employed, where the basis of specific lots are used, as long as they can be identified and documented. These specific identification strategies often try to minimize the gains per transaction and defer them until later.

Gifts and Donations

Similar to gifts of stocks or property, the rules regarding cost basis have remained unchanged. Received gifts are not immediate income but you do still recognize an capital gains income when you later come to sell, exchange or dispose of the cryptocurrency.

You can use the original basis (with documentation) from the giver in order to make use of long-term gains. However, your received basis becomes the lesser of the giver's cost basis and the FMV of the gift on the date you received it. This is to prevent from gifting losses. Also, if you do not have documentation showing the gift cost basis, then your basis is zero, i.e. you must declare 100% as capital gains.

Donations to registered charities do not recognize income, gains or losses. The value of your charitable donation is the FMV on the date of the gift if you have held the crypto for more than a year. For a year or less, it is lesser of the crypto's cost basis or its FMV on the day of the gift.

Bitcoin.Tax reports already splits out the basis for any gifts or donations that you make, which can be given to the recipient to provide them with the information they will require.

What was not mentioned

There are still some key questions and ambiguities that tax professionals have been looking for clarification. For instance, with hard forks and airdrops, if you have the private keys but no software, does that count as control?

Airdrop and forks generally have no markets when they are created, so is there a zero FMV? And should you take the value only when you exercise control?

Can specific identification be used at will or must it be done consistently?

Were 1031 "like-kind" exchanges ever a valid approach before 2018?

Guidance is retroactive

Finally, be aware that IRS guidance is always retroactive, unless otherwise stated, and so should be applied to past and future crypto transactions. If you have not followed these rules then you should consult with your tax professional and may need to file an amendment.

Bitcoin.Tax

Bitcoin.Tax, the most established and trustworthy service for cryptocurrency taxation since 2014, and has calculated over 1 billion capital gains results.

Bitcoin.Tax can process up to 1 million transactions for individual, trader and professional subscribers but also provides custom solutions for larger traders and institutions.

For more information, and to sign up, visit us at https://bitcoin.tax/signup

The most recent IRS letter being sent out to cryptocurrency users, the CP2000 notice, is much more specific and informs the recipient of their proposed tax due.

This is a notice that is sent out by the IRS when there are perceived discrepancies between what the taxpayer filed/paid and information acquired from relevant 3rd parties. In the case of cryptocurrency users, the information is provided from a 1099-K, and the relevant 3rd party is likely Coinbase.

1099-K forms paint an often inflated, one-dimensional picture for the IRS. The form includes the total gross proceeds for every transaction on the exchange. This means that if you sold 1 BTC for $10,000, the IRS would see a gross proceed of $10,000 - even if you paid $12,000 for the 1 BTC originally, resulting in a $2,000 capital loss.

The IRS notice CP2000 is not a new notice specifically created for cryptocurrency users, so there is existing information about the options to respond that are available to the recipient. The main source of this information is the IRS itself.

However, taxpayers should be aware that while the CP2000 notice is not itself a bill, they must take action.

It's vital to calculate your cryptocurrency capital gains properly in order to provide the proper documentation (Form 8949) that illustrates your taxable gains.

Bitcoin.Tax has been helping users work out their crypto tax liability since 2013 and provide a quick, easy and low-cost service that users find intuitive and helpful.

Sign up at https://bitcoin.tax/signup for free up to 20 transactions or upgrade to one of our paid plans, starting at just $29.95.

The IRS has begun sending out educational letters to more than 10,000 cryptocurrency users reminding them that they need to be including their crypto capital gains and losses on their tax forms.

The users have been collected from various compliance measures, including the collection of records from Coinbase after their summons from the IRS in 2018 for 13,000 customer records.

The IRS letters will be referenced as 6173, 6174 or 6174-A, and strive to help taxpayers understand their tax and filing obligations and how to correct past errors.

This will include reference to previous guidance in Notice 2014-21 that clarified that cryptocurrencies was to be treated as property and so subject to capital gains.

It will also note that taxpayers may have a requirement to amend prior year tax returns to include any cryptocurrency transaction and report the capital gains or losses, which may increase their tax liability. This is especially true for the 2017 tax year that saw large increases in Bitcoin and other crypto prices and record annual gains.

Since Bitcoin and other cryptocurrencies are subject to capital gains, taxpayers are responsible for calculating and reporting their gains. There is no de minimis as with fiat currencies and so all transactions must be included. This is often a record-keeping burden on tax payers, as cost basis is not always known when crypto is moved between wallets.

Bitcoin.Tax has been helping users work out their crypto tax liability since 2013 and provide a quick, easy and low-cost service that users find intuitive and helpful.

Sign up at https://bitcoin.tax/signup for free up to 20 transactions or upgrade to one of our paid plans, starting at just $29.95.

In Canada, Bitcoin and cryptocurrencies are considered commodities by The Canada Revenue Agency (CRA). The CRA treats cryptocurrency trades as barter transactions, which makes them subject to the income tax.

The gains and losses from these trades must be reported when filing your taxes, where most individuals would report these figures on their Schedule C. If your cryptocurrency trading is considered a "business", it may be taxed as income. It's always best to confer with a tax professional to determine what your trading constitutes.

Official information about capital gains taxation can be found on the Government of Canada's Website.

The normal deadline for tax reporting in Canada is April 30.

Taxable Events

A taxable event refers to any type of cryptocurrency transaction that results in a capital gain.

Here are the primary ways in which your cryptocurrency could result in a capital gain:

• Trading crypto for crypto
• Selling crypto for dollars or other fiat
• Buying items or paying for services rendered with crypto

Variations of these events can also result in a taxable event occurring (i.e., trading with coins acquired from a fork/split or buying something with crypto that you received for services rendered).

Buying a cryptocurrency with fiat is not, in itself, a taxable event. A taxable event occurs once the crypto is disposed.

Capital Gains = Proceeds — ACB - Fees

ACB refers to "Adjusted Cost Basis", which is how much your coin cost to acquire, plus any expenses associated with it. Adjusted Cost Basis averages together all of your acquisition costs of a specific coin in order to calculate a cost basis.

For example, if you buy 1 BTC for $3,000, 1 BTC for $5,000, and 1 BTC for $10,000, your adjusted cost basis for your BTC would be $6,000. If there were fees associated with those buys, they would also be added to the cost basis.

Proceeds are determined by the value of the crypto, service, or fiat you received, at the time of the coin's disposition. Fees refers to amounts incurred to sell your coin.

Your capital gain or loss on crypto is determined by taking the proceeds from the disposed (i.e., traded or sold) coin and subtracting the coin's adjusted cost basis.

For example, if you acquired 1 BTC for $5,000, plus paid a fee of $100, the adjusted cost basis of your 1 BTC would be $5,100. If you later sold that 1 BTC for $6,000, you would realize a capital gain of $900 ($6,000 - $5,100).

If you did one or two trades throughout the year, it's not too difficult to determine how much of a capital gain has been realized. However, most people have a lot more than one or two trades, which makes manually calculating your gains extremely difficult.

Mining Crypto

The tax treatment for mining cryptocurrency is established on a case by case basis. If the mining being done constitutes a "business activity", it is taxed as income. If it constitutes a hobby, it is taxed differently. It is best to consult with a tax professional to assess whether your mining constitutes a business activity or a hobby.

Superficial Losses

If you realize a capital loss when trading or selling capital property, you can use it to offset capital gains you have elsewhere to lower your taxes. To deter abuse of this rule, the CRA enforces a superficial loss rule on capital losses. If you have a superficial loss, it cannot be used as a deduction against your taxable income.

A superficial loss occurs when you dispose of a cryptocurrency for a loss and then you (or, even someone affiliated with you, like a spouse or a dependent) buys the same cryptocurrency in the surrounding 61 day period (30 days before AND 30 days after the sale).

For example, let's say you have 2 BTC, and then you sell 1 of those BTC at a loss. If that 1 BTC was purchased 30 days prior to the sale, the loss would be superficial. Or, if after selling the 1 BTC, you bought another BTC within 30 days, the loss would also be considered superficial.

Capital Gain Rates

For individuals, the amount of capital gains tax owed is 50% of your capital gains, based off the Inclusion Rate. If your primary source of income is from trading crypto, your gains may subject to a different rate - it is best to consult with a tax professional if you are unsure.

Foreign Property Reporting

Cryptocurrency likely falls under the CRA reporting requirements for "specified foreign property". Given this, if the cost of the cryptocurrency exceeds $100,000 anytime throughout the year, it needs to be reported on form T1135.

Using Bitcoin.Tax

Bitcoin.Tax has supported Canadian users since 2014 and supports adjusted cost basis as a method for all users. Our standard features allow you to import your trading, income and spending activity from exchanges and wallets and calculate any capital gains or losses you have incurred.

Enabling Superficial Losses

Superficial losses, where you cannot claim a capital loss under certain circumstances, can be enabled in Bitcoin.Tax using the option under the Recalculate button on the Calculate tab.

This will check for any purchases (or crypto-crypto trades) where an acquisition of the same crypto is made within the 61 day period, 30 days before or after the disposition. In that case, the capital loss is disallowed and reported as zero and the loss amount is added back onto the adjusted cost basis.

Your capital gains results can be downloaded as a plain CSV or TXF for importing into TurboTax. See our guide for importing into TurboTax.

Bitcoin.Tax is free to try for up to 20 transactions. We offer tiered plans based on the number of transactions per tax year, starting at USD 29.95 up to 1,000 transactions and increasing up to 1 million transactions.

Sign up with Bitcoin.Tax to Calculate your Crypto Taxes

This post is for informational purposes only and not intended as tax or financial advice. Please speak with your own tax professional on how you should treat the taxation of your own cryptocurrencies given your own circumstances.

The IRS opened their e-filing on January 28th and many people are now filing their taxes.

While the new tax laws have changed a few things this year, most rules regarding cryptocurrencies have remained the same.

If you are new to including cryptocurrency in your tax returns, or just could do with a refresher, here are 10 useful pieces of information.

1. Profits from cryptocurrencies are capital gains

A tax event occurs whenever you dispose of any cryptocurrency. For each event, you have to calculate if you made or lost any money. These are declared as capital gains/losses (Schedule D) on your tax forms.

This includes:

• selling crypto for fiat currency, e.g. trading it on an exchange for dollars
• trading one crypto for another, e.g. buying ETH with BTC, as you are disposing of the BTC
• spending crypto, e.g. buying a gift card

If you didn't receive a dollar amount, such as when selling for USD, then you would use the fair market value of the crypto at the time. This might be how much it was worth, or the value of the item you are acquiring. For example, if you buy a $100 gift card, then the fair market value of the BTC you are spending is $100.

It also doesn't matter if you traded and never withdrew the USD to your bank, or received crypto to your own wallet. If the account is under your control and you would have access to the received funds, then it needs to be declared. It also doesn't matter if it is a US or foreign exchange. For US taxpayers, all activity must be included.

2. Long-term gains have discounted tax rates

If you sell or spend your crypto that was owned for more than a year, it can be classed as long-term and any gains made will have discounted tax rates. The rate depends on your other income, but can be 15% or even 0% for lower income taxpayers. There is a 20% rate for high income earners.

You will need to keep records in case you are even asked to prove you owned them for longer than a year.

3. Losses can be offset against income to reduce taxes

To calculate your total capital gains, your short-term gains and losses are combined. Then any long-term gains and losses are combined. Finally, these totals are combined into a net gain or loss.

If you have a net loss, you can use it to deduct up to $3,000 against your normal taxable income, for example, saving $720 in taxes with a 24% tax rate.

Any remaining losses are carried forward to next year. They can again be used to reduce capital gains from that year as well as another $3,000 against income. This continues forever until you have used up all the losses.

4. Like-kind exchanges

Trading between cryptocurrencies is a tax event and you cannot use a 1031 like-kind exchange.

The new tax law in 2018 has changed the wording to:

No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.

While some people reported using like-kind exchanges for 2017 and earlier, it definitely cannot be used for this tax year and onward.

5. Record forks, splits and airdrops

Any crypto you receive is treated as income on the day it was received. The dollar value is its fair price or market value.

While some crypto may have an established price, often, there is no market or known price. In this case, you should still add the crypto as Income, but for zero value.

This is needed for when they are eventually sold or traded, as you will use the date and amount from when they were acquired to work out the appropriate gains.

6. Being paid in cryptocurrency should be reported as if you received dollars

If you are paid with crypto, you should report the income as if you were paid in dollars. If you were paid by an employer, it is likely the figures have already been included in your W2 and there is nothing else you need to do.

But if you received crypto from self-employed, or other work, then you need to report the fair value as your income. For example, if you did some work that you would normally have been paid $1,000, but instead you received crypto, then you report $1,000 as income in your taxes. If you just received some crypto with no equivalent dollar value, then you must use the fair or market price of those crypto on the day you received them.

7. Tips/gifts aren't taxable

If you were tipped, as long as it was not for any provided product or service (i.e. you didn't earn it), then it is gift and does not need to reported and is not due income taxes.

However, if you were tipped or gifted crypto that you subsequently sell or trade, you will incur capital gains.

If you were given the cost basis along with those gifts, you can use this information to reduce any gains when you come to sell them. However, you cannot take losses from the basis of these coins, but instead have to use the market value on the date you received the gift.

8. Transfers do not have to be reported (but fees might)

When you transfer any crypto between various wallets or exchange accounts that you own, you do not need to report or pay any tax on those amounts.

However, you might need to report any fees associated with the transfer, either mining or withdrawal fees. These are disposals, where you are paying for a service, and so should be included as Spending even though the tax amount is likely negligible.

If you were transferring your crypto to an exchange to sell, you could add this to its basis, or deduct it from the proceeds you receive.

Any fees included for spending from a wallet should be included as part of the fair market value. For example, if you are spending 0.01 BTC on something worth $36 but have to include a mining 0.001 fee, you should record this as spending 0.011 BTC for $36.

9. Identify lost, stolen or fraudulent activity

Prior to 2018, stolen property could be claimed as a deduction by reporting it as a casualty loss (subject to certain amounts). This deduction has been removed and now is only available for presidential declared disasters.

While lost crypto could never have been claimed, as accidents or negligence are not tax deduction, losing crypto because of fraudulent activity could instead be seen as a capital loss. For example, if the crypto had become worthless or you are no longer able to access it.

Each situation is different and you should check with your tax professional to decide how to report any lost crypto due to fraudulent activity.

10. Keep records

You should keep records of all your crypto activity in case you are ever audited or required to show documentation relating to your tax returns. For example, you might be required to prove the long-term gains you declared were owned for more than a year.

The burden is always on you to keep documentation and perform record-keeping.

Recently, we have seen exchanges go offline and users have no access to their historical records, or even funds. You should access your accounts and download your data as frequently as needed.

• Keep records of all your cryptocurrency activity.
• Periodically download your trading history from any exchanges you use.
• Export transaction logs from any wallets you have.
• Ensure you have records for each time you spend any crypto.

This post is for informational purposes only and not intended as tax or financial advice. Please speak with your own tax professional on how you should treat the taxation of your own cryptocurrencies given your own circumstances.

Bitcoin.Tax is the leading capital gains and income tax calculator for Bitcoin and cryptocurrencies. You can sign up for free at https://bitcoin.tax/signup.

Bitcoin.Tax and Intuit^® have partnered again for this year's tax season and can now help users import their cryptocurrency capital gains directly into TurboTax Online^®.

Users of Bitcoin.Tax can also benefit by saving up to $15 on TurboTax federal products.

Importing your capital gains

Including your cryptocurrency capital gains information into your tax forms has been quite difficult due to the basic support from the major online tax preparation services.

Also, the current IRS forms are not really designed for cryptocurrency users that have to report every tax event. The standard Form 8949 only allows for 14 lines per page, but trading on multiple exchanges can easily generate many more lines because of how lots are split and cost bases determined.

A trader could end up with a 5,000 page PDF to print!

Fortunately, IRS Form 8949 instructions do allow for printing your own condensed version, but this could still result in a 800+ page file that must be printed and mailed to the IRS.

While Intuit's desktop/CD version of TurboTax has limited import support for the TXF file format, it has not been available for users of the web-based TurboTax Online versions until now.

Importing into TurboTax Online from Bitcoin.Tax

Filing your taxes has just become much easier with the addition of a new TurboTax Online download report file. Bitcoin.Tax and the TurboTax Online team have created a file format that can be exported from your Bitcoin.Tax account and imported directly into the TurboTax website.

This means you can use the power of Bitcoin.Tax to calculate your crypto capital gains along with the convenience of TurboTax to prepare and file your taxes.

Just use Bitcoin.Tax tax as normal, go to the Reports tab and click the Download button. The new option for "TurboTax Online" will download the file you need.

TurboTax Online has a new Cryptocurrency section:

• click Federal in the menu on the left
• choose Income & Expenses at the top
• scroll down into All Income and clicking the Investment Income section
• click the Start or Revisit button next to the new Cryptocurrency option

Importing more than 2,251 entries

TurboTax has a limit of 2,251 entries. If you have more than that in your capital gains report, you can either try and reduce the number of lines, aggregate the values or create an attachable statement.

If you click the "What do I do if I have more than 2,251 transactions?" in TurboTax Online, you are advised to use a service like Bitcoin.Tax and just enter the sum values of your short-term and long-term gains/losses.

You can get these values in Bitcoin.Tax by clicking the Options buttons in the Reports tab, and choosing "group by short/long term".

This will change the table to show one or two lines, one for your total short-term gains and one for your long-term gains.

You can go back to TurboTax and click "I'll enter them myself" then enter the values manually. Or, you can use Bitcoin.Tax and download the TurboTax Online file again, which will now just be those one or two lines, then import it into TurboTax using the Bitcoin.Tax icon.

You may still need to send the IRS all your Sales of Assets entries, as you are supposed to report each and every tax event. Please check with your own tax professional if you need to do this. If so, you can continue and create an attachable statement.

Form 8949 Attachable Statement

The IRS Form 8949 Instructions (page 3 Exception 2) provides details on how to create an attachable statement.

To do this, enter a single line on Form 8949 summarizing each of your short and long term capital gains, and then send the IRS the full details by mail.

To enter a summary line in Form 8949:

• Enter "See attached statement" for column (a)
• Leave the date columns, (b) and (c), blank
• Fill in the total proceeds, cost and gain in columns (d), (e) and (h)
• Enter "M" in column (f)

Back in Bitcoin.Tax, go to the Reports tab and click the Download button and choose "Form 8949 Statement". This will download a CSV with all your entries.

Print this off on paper and then download and complete Form 8453, ticking the entry at the bottom for "Form 8949".

Put these together and mail to the IRS at the address shown at the bottom of the form.

BitcoinTaxes gives you up to $15 off when purchasing TurboTax when clicking our link below.

Bitcoin.Tax is the leading capital gains and income tax calculator for Bitcoin and cryptocurrencies. You can sign up for free at https://bitcoin.tax/signup.

BitcoinTaxes does not provide financial, tax planning or tax advice. Please speak to your own tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.

In December 2018, Her Majesty's Revenue & Customs (HMRC) in the UK issued an update to their policy on how to treat cryptoassets (cryptocurrencies) for individuals.

The latest release of BitcoinTaxes now supports this policy and is available to our UK users.

Capital Gains Tax (CGT)

HMRC does not consider cryptocurrencies to be money and they are still subject to capital gains. While they are split into three types of tokens: exchange, utility and security, the tax treatment depends more on their use rather than the type.

In the vast majority of cases, individuals hold cryptoassets as a personal investment, usually for capital appreciation in its value or to make particular purchases. They will be liable to pay Capital Gains Tax when they dispose of their cryptoassets.

Most users will calculate the capital gains or losses from their trading.

Only in exceptional circumstances, with an individual with high volume trading, would it be considered subject to Income Tax rather than CGT. This might well be the case for businesses that operate a trading system and HMRC says they will come out with guidance for business in due course.

HMRC also considers cryptocurrencies to be intangible since they are digital. This means that one Bitcoin, for example, is treated no different than another, and therefore costs can be pooled together to create an average cost.

When the crypto is disposed, i.e. when you no longer own it, a tax event is seen to have occurred. This could be from

• selling it for GBP, or other fiat currency
• trading one crypto for another
• spending crypto for goods and services
• donating to charity
• giving your crypto to another person

A tax event from a disposal will trigger a capital gains calculation, where you need to work out if the event had a profit or loss.

In the case of giving away crypto, it must be considered a disposal at fair market value in GBP. While no rules are in place for how to work out the value, using a common and consistent method would likely be the best approach.

Donations to charity are not subject to CGT, unless the donation is tainted or if the disposal to charity is valued higher than the cost of acquisition, resulting in a realised gain.

Costs, such as the acquisition cost or fees, can be used to reduce the amount of gains received. However, costs used as part of Income profits or expenses, such as mining equipment, cannot be deducted.

Cost Basis Calculations - Pooling

Since crypto assets are intangible, pooling is used to calculate the cost basis of an asset when it is disposed. This is essentially averaging your crypto with their acquisition costs.

As an example,

Same-Day and 30-Day Rules

Much with traditional shares, crypto has the same rules to prevent bed and breakfasting, with the same-day and 30-day rules.

The same day rule says that when disposing, the cost basis will be taken from any other crypto of that same asset type that was acquired that day, even if occurred after the disposal.

Likewise, any of the same crypto acquired within 30 days will also be used as the basis before any pooled value.

This means you cannot sell your holdings at the end of the tax year to create losses and then buy them back. You would have to wait at least 30 days in order to make use of your pooled assets.

For example,

Pooling with Bitcoin.Tax

Bitcoin.Tax has updated all tax years with these new UK rules. The old calculation methods, such as FIFO, LIFO, averaging, etc., are still in place but we recommend you update your calculation methods selections where appropriate.

To calculate using the Pooling method, go to the Calculate tab in Bitcoin.Tax and select the new "Pooling with same-day and 30-day rule" option. You can select each crypto asset individually or click the Set Method button and choose the option for all your crypto assets.

Changing the option will start a new calculation. Or, if you see "recalculate" next to the Pooling option, please click the Recalculate button.

Once this is updated you should not need to change it again.

Bitcoin.Tax will now calculate using average pooling.

The same-day rule means that any acquisitions made on the same day of a disposal will be pooled separately and used first.

If the same-day rule is not used, then the 30-day rule means that any acquisitions made in the 30 days following a disposal will be used instead of the average pool.

Please be aware that this means we could incorporate income and purchases of cryptocurrencies from the following tax year into your calculations. Therefore, it is important that you navigate to the following year and import any relevant trading and income data before calculating your capital gains - at least the first 30 days worth of data from the following year. You can then go back to the previous year and recalculate.

If there are 30-day acquisitions used from the following year, they will be carried forward and displayed in the Opening tab of that year so they are not reused.

When you are finished, you can see the total capital gains amount shown in the table at the top of the Calculate tab.

We display the capital gains amount and the estimated taxes on that amount.

Please note that we do not take away the standard deduction (£11,300 for 2017/2018) as we do not know what other gains you might have. If crypto is your only source of capital gains, and you are under this allowance, then you may not need to report this information. However, we strongly recommend you still go to the Reports tab and download the CSV of your data in case you need to show this is the future.

Bitcoin.Tax is the leading capital gains and income tax calculator for Bitcoin and cryptocurrencies. You can sign up for free at https://bitcoin.tax/signup.

BitcoinTaxes does not provide financial, tax planning or tax advice. Please speak to your own tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.

If you are new to Bitcoin.Tax, or are just looking for a refresher, the 7 steps below will show you how easy it is to use the software. Please note that several of the steps are optional, and they are listed accordingly.

For more help, please visit the Bitcoin.Tax Knowledge Base or contact our Support team.

Step 1 - Check Tax year

Look in the top left and make sure the correct tax year is selected. The tax year should be the year you are doing taxes for. For example if it is 2018, but you are doing taxes for 2017, the tax year should be set to 2017.

Step 2 - Import Your Trades (Buys & Sells)

The Trading Tab is where you'll import the majority of your data. Make sure you are on the correct tab, and scroll down to the Add Trades section. Once there you can find import instructions for a number of supported exchanges by clicking on the expand plus sign (1) next to the exchange's name, or you can manually (2) import trades.

Remember to import all trades from all exchanges you used during the tax year, even if you only did a minimal amount of trading on the exchange.

You can read more about the Trading Tab and importing trade.

Step 3 - (Optional) Import Income Data

The Income Tab is for cryptocurrency that was received as income, mined, or gifted. If you have this type of data, you will need to complete this step. If none of that happened, then you can move on to the next step.

Make sure you are on the Income Tab, and then scroll down. You can manually add income, or follow the instructions provided to import it automatically.

Remember the Income Tab is for all cryptocurrency income you received outside of trading. This includes being paid in crypto, mining crypto, and being gifted crypto. More information about Cryptocurrency Income can be found on our FAQ page.

Step 4 - Import Spending Data (optional)

The Spending Tab is for cryptocurrency that was used to buy an item, pay for services rendered, or donated/gifted. It is also where you will enter any crypto that was lost or stolen. If you have this type of data, you will need to complete this step. If none of that happened, then you can move on to the next step.

Make sure you are on the Spending Tab, and then scroll down. You can manually add spending, or follow the instructions provided to import it automatically.

Remember the Spending Tab is for cryptocurrency spending outside of trading. This includes using crypto to buy an item, pay for services rendered, donating or gifting someone crypto, or losing/having your crypto stolen. More information about cryptocurrency spending can be found on our FAQ page.

Step 5 - Import Cryptocurrency Holdings From Previous Years (optional)

The Opening Tab is used if you started off the tax year with cryptocurrency from previous years. If you have crypto from a previous year, you will need to complete this step. If you've entered this data into previous years of BitcoinTaxes, it will be automatically imported into your Opening Tab. If you did not have crypto from a previous year, then you can move on to the next step.

Make sure you are on the Opening tab, and then scroll down. You can manually add your previous years' cryptocurrency data or follow the provided instructions to import it automatically.

Remember the Opening Tab is for any cryptocurrency you still hold from previous years. For example if you are doing taxes for 2017, but had purchased some crypto in 2016, you would want to add the crypto from 2016 into the Opening Tab.

Step 6 - Calculate Your Gains/Losses

The Calculate Tab is where you will calculate your cryptocurrency capital gains and losses. You can simply hit the Calculate button, and a summary of your short-term gains, long-term gains, and estimated taxes will be displayed.

Step 7 - Download Your Reports

The Reports & Export Tab is where you will download your reports. On the Reports and Export Tab you can click the drop down arrow on the Download button. This will provide various file format options (e.g., .CSV or .TXF) to export your data. You can use the provided files to import directly into a supported tax software, or to provide to your tax professional.

Bitcoin.Tax is the leading capital gains and income tax calculator for Bitcoin and crypto-currencies. You can sign up for free at https://bitcoin.tax/signup.

This post is the opinion of the author and is not financial, tax planning or tax advice. Please speak to your own tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.

2018 has been an interesting year for crypto-currency markets. Starting with record highs in January, we have seen a steady decline throughout the year to a point where prices are back to the levels of 13 months ago (~$4,800 on 10th Oct 2017)

While 2017 saw records gains in many portfolios, 2018 is likely to see record losses.

As an investor, speculator or HODLer, decisions must be made if you are going to sell.

As we come toward the end of the tax year, you might consider selling some of your crypto holdings to claim losses and give yourself a tax deduction.

Tax Loss Harvesting

Selling assets at a loss can be a useful tax planning strategy. The losses that have been accumulating throughout the year can be realized to offset against other gains and income, to reduce tax liability.

With stocks and shares, you would need to plan this carefully because of the wash sale rule that disallows losses from any sale within 30 days before and after an acquisition of the identical stock. You would have to sell now and hope it doesn't go up too much in December.

However, since Bitcoin and other crypto-currencies have been categorized as property by the IRS (Notice 2014-21) then these rules likely do not apply.

Economic Substance

Before you act, you need to consider one other issue.

Tax experts point to the Economic Substance Doctrine, IRC Section 7701(o), that disallows tax benefits of a transaction if that transaction lacks any economic substance, or is not for a valid business purpose.

A transaction has economic substance if a) it has meaningful changes (apart from tax) in the taxpayer's economic position and b) there is a substantial purpose for making the transaction. Failing these tests could render the transaction invalid for tax purposes, disallowing your losses, and could even impose penalties on any tax underpayments.

So the question becomes does selling crypto create meaningful changes and is there a substantial purpose? And what does that entail?

Tyson Cross, tax attorney at Cross Law and BitcoinTaxSolutions says that,

There is a tried and true principle of the Economic Substance Doctrine under which a transaction has "economic substance" if it exposes the parties to "market risk."

Meaning that letting your portfolio be subject to unknown market forces should be enough to ensure that the sell and subsequent re-purchase would not fail the doctrine. As for how long your should wait, Cross continues,

Two or three days is probably the shortest amount of time I would recommend, with a week or more being the safest choice for those who want to eliminate the risk of the economic substance doctrine almost entirely.

You should review your portfolio and determine if you want to take advantage of any losses to reduce your tax burden, and if so, that you can do it in a way that would be considered to have economic substance.

Long-Term Capital Gains

Also consider that selling now could reduce any benefits from potential long-term gains you might receive next year. Tax rates for long-term gains, which are assets held for more than a year, are substantially discounted at 0% (up to $38,600 as a single-filer), 15% (up to $425,800) and 20% (everything else). This means you need to consider any difference between the potential long-term gain taxes alongside the tax reduction this year. If prices rise next year, it might be better to wait.

Tax Deduction

Tax losses can also be used to offset other capital gains you might have. For example, if you have gains from stocks or shares over the year. Your long-term losses reduce your long-term gains, short-term losses reduce short-term gains, and then the net long-term gain or loss is applied against the net short-term gain or loss.

If there are more losses than gains, these can be included in your tax return as a tax deduction, up to the value of $3,000. Any remaining losses can be carried forward to the next tax year to reduce future gains or income. This continues until all the losses are used.

Let's look at an example.

Summary

• Crypto-currencies are not currently subject to wash sale rules
• Review any re-purchases of crypto to ensure you are not failing the economic substance doctrine
• Be aware you could still incur some costs from the difference in buy and sell prices as well as trading fees
• Reduce taxable income by up to $3,000 per tax year with excess capital losses, with any remainder carrying forward to future years
• Tax loss selling will be reset and reduce the cost basis of your assets so selling the following year could result in increased short-term capital gains

Bitcoin.Tax is the leading capital gains and income tax calculator for Bitcoin and crypto-currencies. You can sign up for free at https://bitcoin.tax/signup.

This post is the opinion of the author and is not financial, tax planning or tax advice. Please speak to your own tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.

A list of self-registered Bitcoin and crypto-currency tax experts can be found at https://bitcoin.tax/cpa.