We made it through 2018 and getting started on your crypto tax preparation will relieve the tax stress before April. Individuals and business owners who completed their 2017 crypto reconciliations know all to well the time it takes to prepare your crypto data for their taxes. Having prepared hundreds of reconciliation for individuals and business owners, there are certain data gathering items will make the process much smoother. Refer to the following to help yourself get fully prepared!
Which exchanges did you use?
Make note of all the exchanges that were used during the 2018 tax year. I have worked on multiple reconciliations where the individual forgets about an exchange that he or she traded on. After back-and-forth conversations, we will typically determine that an exchange was missed - But, keep in mind that this will delay the process. Do yourself a favor and keep track!
Did you make purchases of goods or services with your crypto?
This item is an easy miss and can be important when tax planning. Keep notes of the day, coins used, and amount used for your purchase. If you plan on doing any tax harvesting in the future, leaving out these transactions will create incorrect coin balances and may cause an issue when choosing tax lots to use for tax planning. All business owners should also keep records of their business expenses paid in crypto. These will be taxable transactions at the time of the purchase, but will also be used as deductible expenses.
Did you exchange any coin in your wallets through Shapeshift, Changelly, or a similar exchange?
Most wallets that integrate with these exchanges will not make trade history available, so keeping track of these types of transactions will save you time when gathering year and trade data. Any missing trades will typically result in missing basis, in turn, will force you to pay more taxes than necessary. Keep a spreadsheet to record these transactions. Trade date, time, coin type and amount sold and bought. The exchange used is also sufficient information needed to include in your full trade history.
Did you do any mining?
If mining, most miners or nodes will provide a history of the amount of coins received and the date in which the coins were received. Before you go into tax season, determine how to download your transactions history, not only for income reporting but to include in your crypto transactions. If mining income is not included in your trade, this will most likely cause missing basis if the coins mined were sold.
Did you receive any forks, airdrops, or gifts?
If you have received forks or airdrops - and if they are not included with the rest of your trades - when those coins are sold you will be missing cost basis for those sales. As you can see, there is a common result of missing data. Missing trade data results in missing cost basis which ultimately results in higher taxes. As for gifts, you must have the donor's adjusted cost basis, the date the gift was received, and the fair market value at the time of the gift.
These may seem like obvious to-do's, but having dealt with hundreds of different situations, these are the most common issues in which drag out the reconciliation process. Putting in the extra effort for record keeping will only make your 2018 tax year MUCH easier!