3 Different Ways of Filing your Crypto Taxes
We've all been there: furiously hunched over our laptops, desperately piecing together transaction histories from countless wallets and exchanges like a cryptic jigsaw puzzle. After hours of password resets, deciphering exchange CSVs, and following the blockchain breadcrumbs, we throw in the towel, ready to hand over the reins to the professionals. It may be the priciest option, but all we crave is an escape from the relentless grip of our crypto tax nightmare.
As the tax deadline approaches for many tax jurisdictions around the world, crypto investors are once again finding themselves waking up in a cold sweat at night. While crypto taxes are undoubtably complex, they don't need to keep you up at night.
In this guide, we are going to explore the 3 different methods you can use to prepare your crypto taxes, ranging from difficult to almost completely hands-off. Anyone considering not filing at all should reconsider, as tax authorities worldwide are increasingly pledging resources to catching those evading taxes on crypto gains. Mass audit tools are near, and the immutable blockchain means your transactions can be tracked back to your KYC'd exchange with ease.
Option 1: DIY Tax Filing
One option for filing your crypto taxes is to do it yourself manually with a spreadsheet. It's worth noting that manually calculating your crypto tax obligations yourself can be time-consuming and complex, particularly if you have a large number of trades or holdings across multiple exchanges & wallets. However, if you have under 100 transactions, this method may be suitable for you. Here are a few steps you can follow to manually calculating your crypto taxes:
1. Gather your transaction history
To begin the process of filing your crypto taxes, it is crucial to gather all transaction data for your cryptocurrency holdings from every exchange, wallet, and protocol you have interacted with. This data should contain relevant information such as:
- Date and time of each transaction
- Amount of cryptocurrency involved in each transaction
- Type of transaction (e.g., buy, sell, etc…)
- Price of the cryptocurrency at the time of each transaction
- Any associated fees or commissions
2. Categorize your taxable events
Depending on your tax jurisdiction, different types of transactions will have different tax implications. They can generally be split up into capital gains tax events, income tax events and non-taxable events.
To understand the tax implications of your transactions, you can check out some country crypto tax guides here.
3. Calculate your tax liabilities
In order to determine your capital gains or losses, you must calculate your cost basis for each transaction (including any fees paid) and subtract it from the proceeds (i.e., sale price). If you sold your cryptocurrency for more than your cost basis, you have a gain. Conversely, if you sold it for less, you have a loss. Your total capital gains can be worked out by simply adding the overall gains and losses together.
It's crucial that you are aware of the inventory method you are using. For example, in the US, the IRS mandates investors to use the FIFO (first-in, first-out) method, but in certain circumstances, you may choose the LIFO (last-in, first-out) method or the HIFO (Highest-Cost-In-First-Out) method. Your chosen inventory method may also affect whether your capital gains are classified as short-term (less than 1 year) or long-term (over 1 year), which depending on your tax jurisdiction, could have an impact your tax rate.
On other hand, your total income will be determined by summing up the proceeds received from your income-generating crypto activities (e.g., staking rewards, mining, and airdrops are considered income activities in the US).
4. Create & file your tax reports
After computing your capital gains, losses, and income in step 3, you need to create tax reports which reflect these values. Your tax reports need to be compliant with the standards set by your tax authority and should include:
- Total gains and losses: Separated into short-term and long-term (if applicable)
- Net capital gain (or loss)
- Fees, deductions, or credits
Once you've finalised these reports, you'll need to file your tax returns and pay any taxes owed. The tax rates that apply to you will be determined by the cryptocurrency tax laws and regulations in your country. Some countries may also have a designated software for submitting tax returns (such as TurboTax, which is commonly used in the US and Canada) which makes your life easy.
Alternatively, you can provide your reports to your accountant and they can handle the filing process on your behalf. Remember to maintain precise records of your cryptocurrency transactions for future reference otherwise you're going to have a big headache going into next year!
Option 2: Hire a tax professional
Another option for filing your crypto taxes is to collaborate with a tax professional (e.g., accountant or CPA) who specializes in crypto taxes. An experienced tax professional can provide personalized legal tax advice, help you navigate the complex tax rules surrounding cryptocurrency, and ensure that you comply with tax regulations.
If you don't have time to manually calculate your crypto taxes (option 1) or you're uncertain about the tax implications of your transactions, then this may be a suitable route to take. However, collaborating with a tax professional generally comes with a price, and you may not be willing to invest that much. In that case, using a reputable tax software (option 3) may be the best option for you.
Option 3: Use a Crypto Tax Software
Using crypto tax software is usually much more efficient than manually calculating your taxes in a spreadsheet and is generally cheaper than hiring a tax professional.
There are many different crypto tax softwares out there, ranging from free to paid services. CryptoTaxCalculator in particular specializes in handling all of your crypto transactions in one place, with comprehensive support for on-chain activity including NFTs and DeFi. The platform provides an all-in-one solution for investors and traders in 20+ countries, with support for over 600 exchanges and wallets (including Atomic Wallet!). CryptoTaxCalculator automates the data collection process, categorizes your transactions and calculates your capital gains, losses, and income. It also has a tax-loss harvesting feature which offers customized tips to optimize transactions and potentially minimize your tax burden.
CryptoTaxCalculator's Tips feature provides valuable insights and suggestions to help users optimize their tax reports, ensuring they don't overpay on their taxes. By analyzing the user's transaction history, the platform identifies potential tax-saving opportunities and potential actions to minimize the tax burden.
How to import your Atomic Wallet transactions into CryptoTaxCalculator?
In order to import your Atomic Wallet transactions into the platform, you can simply head to CryptoTaxCalculator then click 'Start for free' in the top right corner to create a free account. Then go to the 'Integrations' page and type in 'Atomic Wallet' & click the logo which comes up. You'll see that you can either import your data by syncing your wallet address(es) OR via uploading your CSV file(s).
Option 1: Select your wallet network then enter in your wallet address
NOTE: you can import multiple Atomic wallets (there's no limit to how many of your wallets you can add).
Option 2: Follow the steps here to export your Atomic Wallet CSV file and upload into CryptoTaxCalculator.
Don't forget to import your data from any other wallets or exchanges that you use. Once you've finished importing your data, you can go to the 'Transactions' page where it will give you a detailed overview of your crypto activity; meanwhile the 'Tips' page will show you if there are any actions you need to take to reconcile your transactions. After reviewing your transactions, you can generate a range of tax reports in the 'Reports' page. These reports can then be sent to your accountant or you can file them to the taxation office directly yourself. CryptoTaxCalculator also has integrations with TurboTax and Xero so you can file your tax statements via there as well.
Have we mentioned the best part yet? In partnership with Atomic Wallet, CryptoTaxCalculator is offering users a 20% discount to the platform. Simply head over to CryptoTaxCalculator, sign up for an account and use the code ATOMIC20 at the checkout.