Owning bitcoin is one thing, but maintaining it and its related records more securely is quite another. Although a blockchain explorer may offer a transaction list for every wallet, the majority of cryptocurrency traders and investors retain their coins in several diverse locations and conduct their transactions in more unusual ecosystems, including decentralized finance (DeFi). Let us examine how to accurately record your cryptocurrency transactions across platforms for tax and performance-related purposes. If you are interested in bitcoin trading you can visit this Bitcoin Software.
The Importance of Recordkeeping
The majority of cryptocurrency fans possess an extra Coinbase account with little BTC. You might, store some cryptocurrency in a protected offline wallet, trade on an exchange, and stake some tokens on a DEX. But you might have to reconcile transactions between these many systems. This is because the IRS views cryptocurrencies as property, necessitating the calculation of capital gains as well as losses. You must be informed of each token’s cost base to attain this. Therefore, you should think about when you bought the coin rather than where you bought it.
Avoid Relying on Form 1099-B
To deal with these complications, many stock investors turn to their brokers. Even if it entails a transfer of shares, the broker transmitting the information will report the cost basis to the broker receiving it. As a consequence, using a stockbroker’s Form 1099-B to calculate your capital gain or loss is a trustworthy method. Transactions are unfortunately far more difficult for crypto exchanges to trace due to cryptocurrency’s decentralized structure. Finding the cost basis between cold wallets and smart contracts in the cryptocurrency ecosystem is really challenging. Exchanges for cryptocurrencies must now provide the same Form 1099-B as a stockbroker as per new regulations.
However, a copy of the Form 1099-B that can have an imprecise or unclear cost basis is sent to the IRS. If they are unable to match transactions, they can therefore presume that the cost base was nil or lower than it ought to be. Thus, maintaining correct documents is crucial to defending oneself in the case of an audit.
How IRS Is Handling It
As the IRS intensifies its cryptocurrency enforcement operations, recordkeeping is becoming more and more crucial. Since 2017, the agency has sent warning letters to taxpayers. As a result, the government’s John Doe summonses show how much more of an emphasis it is placing on obtaining the crypto taxes it believes people are owed.
The agency will examine taxpayers who don’t declare cryptocurrency transactions as part of Operation Hidden Treasure, which it launched in March 2021. In order to investigate both civil and criminal tax evasion, the program collaborates with the IRS Unit of Fraud Enforcement including its Criminal Investigations office.
The IRS’s authority to probe taxpayers has been further expanded by new exchange requirements for Form 1099-B submission for customers. In the meanwhile, the agency has enlisted blockchain specialists to assist in tracking down transactions and locating any liabilities. Maintaining proper documents to fight against an audit is therefore more important than ever.
Combining Transactions From Different Accounts
It is difficult to combine transactions from different wallets, exchanges, and accounts. However, if you leave it to your accountant, you can be liable for billable hours totaling several hundred thousand dollars. Because of this, a lot of cryptocurrency traders and investors keep their own records and use different tools as well as spreadsheets to match up transactions.
Conclusion
For tax considerations, crypto traders and investors should maintain a thorough record of their cryptocurrency transactions. However, with so many individuals utilizing several exchanges, wallets, and cryptocurrency platforms, maintaining thorough records can be difficult. A few tips have been provided in the article above to help you understand it more simply. I believe they will be very informative to you.
