5 tips cryptocurrency traders can’t miss for this tax season
5 tips cryptocurrency traders don’t want to miss this tax season
Being a cryptocurrency trader is a complicated hustle. Apart from trading, you have to pretty much do everything by yourself on accounting and compliance. Here are a few tips on how to prepare yourself for the tax season and to avoid being on the wrong side.
Cryptocurrency Trading & Accounting
Trading capital markets have evolved over decades and have defined guidelines, suitable tools and institutions to help you with accounting and being tax compliant. While cryptocurrency trading, a fairly young market with a lack of clear guidelines from governments makes it more difficult for traders to find out if they are on the right path.
It’s normal for traders to be heads down on their analysis either technically or fundamentally and focus on booking profits or stopping steep losses. However, being a cryptocurrency trader also puts a lot of stress on you through compliance and accounting side.
Tips for better accounting
Keep really good records
It’s very important to keep a good record of all your activities. It‘s common to create accounts on numerous exchanges in pursuit of new coins and profits that come along. However, given the maturity of space, security concerns, and trust issues — it’s important to register and trade on only reliable exchanges.
- Use password managers to avoid duplication of passwords on unreliable exchanges
- Make sure to see that the exchange provides you with a transaction history CSV (if you have a choice, go for the one with the better record keeping)
Download transaction history regularly
Either due to technological limitations of just as part of their architectural decisions, some exchanges limit transaction history to latest 3 months or other similar conditions. This would restrict your access to transactions done out of this given period leaving you with no records (You might miss accounting these transactions, but exchanges will be able to provide them if asked by concerned authorities as they still have it in their database).
Generally, exchanges do this to limit the burden on their servers (from a number of users requesting tons of data).
So, it’s important to download transaction history regularly. You can set a repeating calendar invite to do this. Some of the crypto accounting tools like BearTax can interact with such exchanges via API to comply with their API rate limits and fetch all trades (Eg. Binance API provides complete transaction history whereas CSV download is allowed only for 3 months).
Pick a format and track manual/dex trades
With an increasing number of cryptocurrency and blockchain related projects, crypto traders tend to invest in such projects by purchasing tokens in exchange for Ethereum, other cryptocurrencies (Initial Coin Offering). Sometimes, projects give away tokens to interested users to create the network effect when the project launches — these are called Airdrops. You need to keep track of such ICO participation as well as Airdrops to have a record of cost-basis for each of the asset you acquire.
Choose a software like BearTax and download a template of a generic format, which can be later uploaded to calculate taxes. Use this format to keep track of your ICO participations, forks, airdrops and other assets acquired on decentralized exchanges.
Keep track of your addresses
It’s common for technology enthusiasts to try out various applications, create unlimited addresses either for Ethereum, NEO or Bitcoin across various wallets. It’s important to keep track of addresses and their private keys for having complete control of your assets.
This tracking of addresses will also help you to account for all possible transactions made and can save you money by showing that you have not disposed of certain assets and doesn’t unnecessarily trigger a taxable event.
A taxable event only gets triggered when you sell or convert your crypto to another crypto. So having a proof that you still hold your assets is always good.
How BearTax can help you follow these tips
Keeping good records, consolidating trades by downloading trades regularly, managing various addresses/wallets and dealing with decentralized exchanges, quick exchange applications, ICOs and Airdrops is easy with accounting and taxation software BearTax. This software will connect with all your favorite exchanges, import trades, match them smartly with buys and sells to provide you with gain-loss information.
All this can be done for free without having pay for anything. So all the tips provided earlier can be achieved without having to manually put in a lot of effort and worry about different ways to persist them.
So, try out yourself by signing up at app.bear.tax and connect your exchanges to see the magic!
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These tips are provided for informational purposes only. This do not constitute to a financial advise or tax advise in any form. Please get in touch with a professional accountant who can help you understand taxes for your case. BearTax do not do taxes for you, it’s a software to consolidate, keep records and calculate gain-loss for your convenience.
5 tips cryptocurrency traders can’t miss for this tax season was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.