The IRS treats crypto currency as an asset. An asset is property that you own for personal or investment reasons. When you sell or trade any asset, including Crypto, the IRS requires you report it.
Reporting requirements for Crypto Currencies have evolved over time, however one IRS rule remains constant to date; you must report each and every trade on Form 8949 by providing the following information:
- Description of the crypto currency traded
- Date Sold
- Quantity bought
- Quantity sold
- purchase Price
- Sales price
Example
| Description | Date Sold | Quantity | Price | Proceeds | Date Bot | Quantity | Price | Cost | Gain/Loss |
| Crypto 1 | 02/20/2022 | .05 | 1,000 | 50 | 03/01/2019 | .05 | 0.10 | 10 | 40 |
| Crypto 2 | 06/30/2022 | .06 | 30,000 | 1,800 | 02/15/2018 | .06 | 10,000 | 600 | 1,200 |
| Crypto 3 | 07/20/2022 | 100 | 50 | 5,000 | 06/21/2020 | 100 | 80 | 8,000 | -3,000 |
This illustration shows three separate Crypto trades, however most Crypto traders have hundreds or even thousands of trades in a year. Since each and every trade must be reported, it is necessary to be able to provide the sales and trades information in an electronic spreadsheet format such as Excel, Google Docs, or .xml format.
There are a number of companies that help facilitate the proper reporting and tracking of Crypto trading. Two examples include CoinLedger and https://coinbase.com. The site imports trading information and converts it to a .xml format that can be imported into tax preparation software.
It is very laborious to manually type each Crypto trade into tax software, and the data entry fee is $4 per trade. For example, 1,000 trades would cost $4,000 to enter manually into tax software. Whereas the cost of preparing a tax return where Crypto trading data can be imported from a .xml spreadsheet would be figured based upon the time it takes to sort and import the data and result in a higher degree of accuracy and much lower preparation fees.
If you would like Pacific Northwest Tax Service to prepare your return and you are a crypto-currency trader, then we will need you to provide us with a spreadsheet of your trades in .xml or Excel format.