A Hobbyist Crypto Trader – s Life ter Tax Hell
Chandan Lodha is co-founder at CoinTracker, a portfolio and tax manager for cryptocurrency. He can be reached on Twitter here.
The following article is an special contribution to CoinDesk’s Crypto and Taxes 2018 series.
Spil a hobbyist investor, my very first foray into cryptocurrency wasgoed with Coinbase.
I wasgoed buying a few coins here and there, and everything wasgoed plain enough to manage te a spreadsheet. I would record the date, time and amount bought and sold for every transaction. This worked well enough for the very first Ten transactions.
Soon, however, like many others te the space, I found myself deep down the cryptocurrency rabbit slot.
I had exchange accounts on GDAX, Poloniex, Binance and a bunch of others. I wasgoed buying privacy coins on decentralized exchanges. I had read about the large-scale exchange hacks which burned many folks ter the past, so I set up cold storage hardware wallets and ended up with overheen 15 different wallets for different types of altcoins.
Still, I wasgoed a hobbyist, I wasgoed fresh to the space and just tinkering with petite amounts of thesis coins, learning, nosey to see how this digital, decentralized economy operated and how the underlying technologies all worked.
It wasgoed fascinating, but also confusing spil hell.
The ogenblik I moved a single coin out of Coinbase, the exchange no longer had an accurate reporting of my holdings and transactions so its tax report wasgoed incorrect.
My own spreadsheet wasgoed getting unwieldy, spil I began to integrate Google Apps scripts to look up exchange prices from the different exchange accounts I had, plus match-up cost bases for wallet-to-wallet transfers.
The spreadsheet got more and more complicated, until one day it took two minutes to stream.
Money on the line
That wasgoed the violating point there had to be a better way than running this hacky spreadsheet.
Normally, for a side project I wouldn’t have cared, but this wasgoed flagrante money on the line and I didn’t have a clue how much fiat money (U.S. dollars) I had invested. How wasgoed I going to calculate my hacienda gains taxes on crypto if I didn’t even know how much money I have invested ter the very first place? It wasgoed becoming financially irresponsible for mij to not have a better grip of this.
I turned to my friend sitting next to mij and asked him how he wasgoed solving the same problem for himself. He turned his laptop to mij: a almost identical complicated spreadsheet (te fairness, his wasgoed better than mine).
There wasgoed no way that mainstream users were leaping through thesis hoops. Wij instantaneously commenced researching what other crypto-enthusiasts were using to solve the tracking problem.
To our frustration, there were no good devices. The most popular device wasgoed a mobile app that operated like a stock ticker app: it would demonstrate you the prices of coins daily and, if you dreamed, permitted you to by hand add thesis coins into a portfolio, one at a time.
This wasgoed even worse than the spreadsheet wij already had and wasn’t at all personalized to our particular portfolios, let alone calculating our cost onderstel, haber gains, or providing any useful information for taxes.
Then and there, my friend and I determined to zekering doing what wij were doing and productionize our spreadsheets (OK, his spreadsheet) into a plain webstek. It wasgoed the very first incarnation of what has now become CoinTracker.
The ético of the story: make sure you keep good records of your transactions, or use exchanges which provide thesis records for you.
If you are using numerous exchanges and wallets, trading numerous coins, or using secure cold or almacén storage for your coins (which everyone should do) then there are several devices out there which can help you track your entire portfolio, your terugwedstrijd on investment, the amount of fiat invested, and perhaps most importantly your cost ondergrond and renta gains.
Ter the future, ideally the IRS will help clarify the tax rules which apply to cryptocurrency, especially around grey-area issues such spil like-kind exchange (retroactively), which accounting methods are acceptable for caudal gains (e.g. FIFO, HIFO, etc.), and airdropped coins.
Until then I hope to see exchanges and brokers making effortless reporting a priority so that their users are not left scrambling to figure out their tax situation.
Meantime, I recommend educating yourself about how to secure your coins, and learning about how cryptocurrencies are regulated ter your jurisdiction. If you toevluchthaven’t already pounded down your 2018 cryptocurrency taxes, verkeersopstopping a free tax extension (but make sure to pay your estimated taxes due to avoid late fees).
Even however cryptocurrency is still a nascent space with lots of uncertainty and some headaches like the ones I’ve described above I’m very hopeful about the future of the industry. Uncommonly does such a revolutionary tech come along and there are lots of superb materials out there to learn more.
The leader te blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a stringent set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests ter cryptocurrencies and blockchain startups.