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VideoPodcast: Crypto Tax Reporting
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Weaver On-Chain Series
Key Points:
- The U.S. tax treatment of classifying all digital assets as one broad category of property needs to be reworked to encompass different asset types.
- The documentation and tracking of basis, FMV, and taxable events is cumbersome and complex.
- CoinTracker is a robust solution to help with tax reporting and the calculation of capital gains and losses for various cryptoassets.
Shehan Chandrasekera, Head of Tax Strategy at CoinTracker, is a subject matter expert in cryptocurrency taxation. Like many who first experience crypto, Shehan saw the potential of cryptoassets, but realized transacting and investing in these assets presented an enormous administrative burden. With few professionals and CPAs skilled in the industry, Shehan set out to build a solution.
“CoinTracker is a software that connects with your wallets and exchanges and automatically reconciles your capital gains and capital losses,” Shehan said. “Especially if you have multiple wallets and exchanges, it’s really hard for you to reconcile those numbers manually, and we do that automatically. You can download the tax report and share those tax reports with your accountant or file using software like TurboTax or any other tax software.”
With U.S. tax laws, tracking cryptocurrency transactions isn’t as easy as with other forms of assets, and there are no reporting requirements from service providers or cryptocurrency exchanges. Finding a solution to help maintain them and provide visibility to the taxpayer is critical. “People can get into a lot of trouble if they don’t know about the tax implications related to cryptocurrency.”
In typical stock trading, at the end of the year, people download a 1099-B form which provides a complete summary of information related to the stock purchases and sales, losses, and gains made during the year. “In the crypto space, that doesn’t happen,” says Shehan. “The typical crypto user has three-to-five wallets and exchanges. Some of these crypto exchanges don’t have any 1099 reporting obligations. Therefore, you don’t get any tax forms.” It is the individual’s responsibility to reconcile these transactions.
Tim and Shehan are hopeful that documentation processes and information provided by exchanges will become more robust soon. Per Tim, “there is talk about a new 1099 form for digital asset transactions. I think this will greatly aid in reducing administrative burden and helping taxpayers report more accurately.”
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