So I woke up this morning a little nauseous, caused by nerves. I'd been trading pennies the last few years, nothing really worth reporting to Uncle Sam. To put it into perspective the accountant said I started the year with $35 USD in bitcoin and $150 in various altcoins. I added one paycheck to this at the beginning of 2017 and traded my way well into the mid five figure range. By today's standards I'm still small time but really happy with what I accomplished in my first year of serious trading. I'd like to be a little more specific on end of year cap gain totals, but I think its a bit tacky, and not wise from a security standpoint.
At first I thought I was only going to be claiming funds I transferred to USD. This wasn't a serious issue for me till around December when the bitcoin price hit about $20,000. For the first time it sunk in that The Dood had a serious tax obligation to his country. Knowing tax time was right around the corner I decided to start researching crypto taxes immediately.
One of the first things I learned was that a loophole for "like kind exchanges" that many traders had been using, was no longer going to be possible. Apparently Presidents Trumps new tax bill made it very clear this wasn't going to stand any longer. Based on this information, I had to come up with a way to track every single trade I made over the course of 2017 and there were a lot of them. Over 10,000 to be a little more precise.
I talked to our family accountant who had no clue how to handle crypto taxes and said she would rather not mess with it. I then called a few local accountants who seemed equally confused. A couple of them offered there services but I wanted someone that knew what they were doing. Finally I found a guy a city over, about an hour and a half drive away, who specialized in crypto taxes. I called him and we talked for awhile, he explained my obligation, a couple different online tracking software to use, the best way to handle it, and offered his services. I wasn't comfortable having an account that I had to drive over an hour to talk to though. It was a matter of luck that I ran into an old friend, and was talking about my accountant dilemma. To my surprise he too had just begun trading bitcoin and said, "I know a guy, he's done bitcoin taxes for a couple friends, give him a call and see what he says."
I gave the guy a call, he seemed knowledgeable, and I set up today's appointment with him.
So the first accountant I talked to told me about bitcoin.tax & cointracking.info I looked into both them as a solution to track my profits and losses. I ended up using Cointracking. You basically plug in the exchange API key and the tracking software downloads all your data and figures out your profits and losses. Soooo....
This was a nightmare in itself. At the height of the altcoin rush many exchanges were not only limiting new customer registrations, but also limiting access to their API's to help limit server load. Luckily I was able to get my data into the Cointracking account about a week before this happened.For the most part cointracking figured out all my profits and losses, I had to manually enter a bunch of deposits and withdrawals from a few different exchanges. All in all this took me a couple attempts before I got everything right. The good news is, once I figured out the software it produced a bunch of different reports that my accountant understood, and was able to use for my filing. As we were playing with the reports on his office computer I was explaining the situation to him, and he looked at me and said, "If you didn't have these reports, this would of been an accounting nightmare, and not cheap."
So I guess the $300 dollars I paid for Cointracking was worth it. By the end of it all he was able to figure out my profits and losses. He used the cap gain report, not the tax report the website originally suggested. He figured out my tax obligation, and was able to do this for not much more than a standard return. He added my W2, cap gains, gave me my total. All I'll say on that is that I owe several thousand for federal, and a couple thousand for state :( Luckily I socked some away for just such an occasion.
Not tax advice, but you may want to figure on 15% to 20% of your cap gains and put them in an account for tax time. A friend of mine that's really into investing suggested that I did that in the middle of the year and I'm really glad I listened to him. I'd of been really pissed if I didn't have that money, and I've owed the IRS in the past. Trust me you don't want to owe these people money. Frankly, I'd rather owe the mafia money than these guys. It's a major pain in the ass, and when you miss payments the interest and penalties are outrageous. Just like the local shylock.
So I guess to summarize all this. I used Cointracking and I'm really glad I did. It worked out well, but wasn't without problems. As far as I understand as a US citizen the tax obligation is the USD value of BTC at purchase, the USD value of the altcoin purchased in btc, then the price of btc on the sale of the alt in US value. Yeah, it's more than a bit confusing, not to mention a bit complicated. The IRS really needs to come up with an easier way for people to do this. They can't understand why people aren't filing crypto taxes, well if they made it easier, and clearer, more people probably would. Just saying.....
I also consulted with the accountant on affiliate program earnings, steemit earnings, crypto gifts and giveaways. He took this into his accounting. Each of these could be and may be a future blog post that I don't want to delve into today. Overall, I'm glad I hired an accountant to handle this, I feel good about getting this over and out of the way. It sucks paying out this money, and I feel a bit taken advantage of. I don't mind paying my "fair share" but question the number of taxable events in crypto trading. In some instances it seems as though we are taxed multiple times on many unavoidable transactions. I would strongly suggest having an account handle this for you. They know what to look for and in some cases may even be able to find you some savings.
Nothing in this article is meant as tax or financial advice, this is just a personal blog entry documenting my experience, and posted for the readers entertainment. Thanks for reading, good luck with your crypto taxes, and happy trading everyone!
If you're looking for a way to track your trades, this worked out pretty well for me. I was promoting the referral program for awhile but stopped after they were having the API issues with some of the exchanges. Another thing I didn't like is the fact that it's proprietary software, that resides on their servers. If the company ever closed, you run the risk of losing your data. I asked my accountant for alternative suggestions, and he pretty much said that he'd stick with what I did and suggested just downloading monthly reports as backups. If anything happens to the site or I'm no longer able to access my data, we handle that when it becomes a problem. For now he said it was perfect for what we needed. Here's my referral link if you're interested in trying it out. They do offer a free service, that allows you to track your trades without access to the reports. The pay version unlocks the reporting abilities.
This could be a minefield, but it depends on how the tax people handle it and what advice they give out. The UK taxman has issued some guidelines, but things like Steem complicate it as most won't have bought it. It's really another form of income.
I talked to the accountant about that. He suggested entering all STEEM and SDB trades into a separate spread sheet. Apparently, in the US I need the USD value at the time I accept payment, If there is a profit or loss when I transfer to exchange is another taxable event, then if there is a profit or loss when I cash out the BTC earned is another taxable event. What a nightmare! Anyway, I did claim my Steem earnings, but they will get their own ledger as of this year. Apparently I'm going to have to freshen up on my LibreOffice Calc skills and create a spreadsheet for this.
I really just think they are making people keep track of so much and do all this paperwork as a deterrent to keep them away from crypto. I mean having to track the USD value of all the STEEM and SBD you earn? That's pretty much impossible. You'd have to manually log the prices every time you claim rewards, but when would they want you to snapshot the value? At the time you were upvoted? When the claim rewards button appeared in your wallet? Or when you actually claimed the rewards?
It really is ridiculous. I've wondered about taxes as a deterrent too. They seem to be making this a lot more difficult then it needs to be. I suppose the community needs to start getting vocal also though, and start nagging our representatives to simplify this.
My accountant said to log the value in USD on claiming rewards, then value when sold to btc in USD, then value btc was sold for. Pretty crazy. I'm going to create a spread sheet over the week just to handle steem transactions I guess.
If logging the value only when claiming it would be really easy to game the system. What if you just never claimed the rewards and just let them sit there and accumulate. If STEEM goes up 500% then you can claim them and not have to pay anything on those 500% gains.
@noremac13 it really is impossible!!! am I going to go to jail for getting it wrong? I am NOT a spreadsheet person...
@the-bitcoin-dood that is so complicated..... I literally am going to cry. Or to jail for doing it wrong. I haven't been keeping track of that stuff!! That makes no sense anyway...it only makes sense to me to be taxed once we trade into fiat. Because, what if it was higher at the time of payment but now it's lower? then we actually lost....
With this software, you can include your Steemit account value and affiliate income?
No. There is a way to plug some crypto wallets into it by address. This might work, but it wasn't something I did. I did keep track of my Steemit earning on a separate ledger though, and my accountant suggested a better to keep track of that. I was advised to record my earnings at the moment I claim them, then any profits or losses I take when I cash out to btc. And again, when I cash out the BTC profits. Absolutely ridiculous.
Affiliate income is tracked pretty much the same way. Value at time received, value at time cashed out.
Sounds like a good job jobbed. I can understand why you're glad it's over. But . . . I'm really happy for you that, in you first year of trading, you've done so well!
That's the thing to hand on to. Well that and your accountant! 😁
Yeah, the accountant was priceless. I was really nervous when I woke up this morning. It was not knowing, and I knew I owed, just wasn't sure about how much. Learned a lot about getting ready for next year too.
I'm still looking for the right accountant (in Los Angeles) to help me with mine, and have been going down a similar rabbit hole. Luckily wasn't really doing a whole lot of daytrading, but wanting to be conscious about following tax law for what I was doing. Bitcoin.tax is what I ended up using to get a preliminary idea of where my stuff is. I wish more accountants were into crypto, or that more directories existed to help people find accountants in their area who aren't overwhelmed by cryptocurrency.
bitcoin.tax has an accountant directory. That's where I found the first guy that was an hour away. Eventually more accountants will have to learn about this stuff, and I'm guessing the govt. will eventually break down and try to make collection of taxes easier for both them and us. At least I'd like to hope they will.
First of All i would like to Congrats you for your success in Crypto,
You started with just 35$?
10,000 transaction,
All these things are shouting about your hard work you did for trading,
Thanks for telling about Coin tracking,
I'm into trading yet,
but when i'll start i'll definitely use it for sure.
Thanks :) It's been a wild ride and a fun one. Met a lot of great people on the way and learned a lot about trading and investing. Hoping 2018 can be a repeat of the previous year on a slightly larger scale :) Welcome to crypto trading!
we learn from our failures and bad experiences :) as you have tried many things to get to the account of your choice :) now you happy to have him.
Indeed :)
Best of luck for your future trading :)
By Cointracking.com you mean Cointracking.info right? I have used them for a while now but I never paid to upgrade from the free version because I didn't really like their UI. I also noticed some inaccuracies in my PNL calculations and it kept telling me I had more coins than I knew I did. Hopefully your tax guy looked over everything and caught any inaccuracies if you had them as well.
I would also advise that people periodically export their trade logs to CSV to have copies locally in case the exchange loses their data, or worse, shut down.
LOL, yeah cointracking.info Thanks for pointing that out, just edited it.
I had to go through everything and fix the inaccuracies, then had the accountant finalize everything. The UI is a bit to be desired. It took some time and configuring to get everything right, but in the end I think it was a great solution. I'll stick with them till something better comes along.