Crypto is a volatile asset that can be difficult to understand. With the IRS and SEC doubling down on crypto, you are now required to enter your social security number when joining a crypto brokerage like Coinbase. The IRS knows how much money you are making in the crypto space, therefore it is absolutely important to file your crypto capital gains and losses. If you have traded more than $20,000 within the tax year, you will probably receive a 1099-K from your crypto brokerage. Otherwise, you have to report your crypto activity using Form 1040 Schedule D and Form 8949. Read on to learn how.
USING A CRYPTO TAX SOFTWARE
Coinbase and others have partnered with CoinTracker and TaxBit, respectively. CoinTracker and TaxBit are just two of many new crypto tax companies. You can connect all of your crypto wallets and generate ONE REPORT for FREE. If you forgot to include one of your wallets and try to generate a second tax report, you will have to pay for it. This all-in-one report can be submitted to your tax accountant or an online tax software like Turbo Tax and Cash App Taxes.
FILING USING AN ONLINE TAX SOFTWARE
The Automated Way
Intuit’s Turbo Tax online software makes it super easy to file your crypto with Coinbase, NiceHash, and other crypto brokerages and/or miners. I have been filing my own taxes with TurboTax for three years. You can read my comparison between Cash App Taxes (A.K.A. Credit Karma Tax) and Turbo Tax here.
Whether you get a 1099-K or not, you can connect your crypto accounts to Turbo Tax, who will automatically download your transactional data from your wallets. This worked for Coinbase, but it did not work for Coinbase Advanced Trade. I had to go the Manual route for Coinbase Advanced Trade.
The Manual Way
For Coinbase Advanced Trade, I had two alternative MANUAL ways to enter my gains and losses.
- Upload a .csv file with your transactions
- Manually enter each transaction one at a time.
Whatever option you choose to try, create a spreadsheet with 5 columns and name them Purchase Date, Cost Basis, Currency Name, Date Sold, Proceeds, and Fees. Make sure you use this exact wording if you are using a service like Turbo Tax.
Purchase Date and Date Sold is self-explanatory. Your Fees include the fee you pay for trading. With Coinbase Advanced Trade, it’s only 0.50%. Examples of Currency Name include USD (United States Dollar), BTC (Bitcoin), ETH (Ethereum), ADA (Cardano), and more. Your Cost Basis is how much you spent. For example, you bought 0.02 Bitcoin at a price of $40,000. You will multiply 0.02 by $40,000 to get a cost basis of $800. Your Proceeds would be your sale. If you sold 0.02 BTC at $45,000, your proceeds would be $900. Turbo Tax and other online tax filing services will automatically calculate your gain or loss. In this example, the capital gain is $100. That means you must pay taxes on $100. If you bought and sold within a year, you will pay the higher short term capital gains tax. If you held for more than a year, you pay less tax.
If you want to try Option 1 of uploading a .csv file, then simply SAVE AS “MyCryptoTaxes.csv” and upload it to Turbo Tax. If that still does not work, then you will need to go with option 2 and manually enter your transactions one by one. You can use the spreadsheet you just made to enter the data in Turbo Tax.
A More Complex Example
In the previous example, we purchase and sell the same amount of Bitcoin. What if you bought 0.5 Bitcoin at $40,000 but only sold 0.25 Bitcoin at $50,000? How would you calculate the proceeds? Your Proceeds would be 0.25 multiplied by $50,000. Your Cost Basis will be recalculated as 0.25 multiplied by $40,000. Make sure the amount of crypto matches (0.25 = 0.25) between your proceeds and cost basis.
FILING THE OLD FASHIONED WAY
If you are filling out all tax forms manually without the help of an accountant or tax software, you will need Form 8949 and Form 1040 Schedule D. TurboTax and other online tax software’s will do this for you. So will a tax accountant.
Filling Out Form 8949
Form 8949 is where you report your Sales of Capital Assets. They describe these capital assets as properties. This includes stocks and crypto’s. If you did not receive a 1099-K form because you made less than $20,000 in trades, make sure you check Box C under Part I Short Term and Box F under Part II Long Term. Everything you need to fill out should be in that 5-column-spreadsheet I mentioned earlier. You will need to know the date you purchased and sold your crypto, the cost basis or total purchase price, the proceeds or total sale, the fees, and the gain or loss.
Filling Out Form 1040 Schedule D
This form is pretty easy to fill out if you already filled out Form 8949.
- Part I includes Short Term Capital Gains and Losses.
- Part II includes Long Term Capital Gains and Losses.
The following boxes includes all the data in your 1099-K or the manual spreadsheet I mentioned earlier. You will need your total proceeds, cost basis, and gains or losses for each transaction.
SHORT TERM = Box 3a, 3d, 3e, 3g, 3h
LONG TERM = Box 8a, 8d, 8e, 8g, 8h
Box 7 is where you will enter your net short term gain or loss and Box 15 is where you will put your net long term gain or loss.
If you do have 1099-B’s with your regular brokerage like M1 Finance, Webull or Robinhood, you will need a separate Form 8949. Check each box to see if any apply to you, though most can ignore the rest of the boxes on Form 1040 Schedule D.
Summary
Don’t ignore your crypto when filing your taxes. The IRS knows you made money. There is a good chance you will eventually be audited and fined if you skip paying taxes. I hope this guide makes it easy for you to report your gains and losses in crypto so you can accurately and legally file your taxes. If you are still feeling unsure, then go with a professional tax accountant and see how they do it. You can use the copy of your tax return to do next years’ tax return on your own using Turbo Tax. Sign up with Turbo Tax here.
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