Congratulations on making it to the very last lesson! In this lesson, we’ll be covering the different options you have when it comes to calculating your crypto taxes. It’s important to note that the option you go with may depend on the complexity of your transactions, volume of transactions and amount of money you’re willing to spend on your crypto taxes.

Photo by Austin Distel on Unsplash

So now that we understand some basic rules about cryptocurrency tax, how do you actually get started and calculate our own crypto taxes?

Well you have some options:

Option 1: Calculate them yourself

This option is only really available to those who haven’t traded much and generally become an absolute nightmare for anything more than 100 transactions.

Here’s a 5-step process you can follow if you think this option might work for you:

1. Gather your transaction history:

Before doing anything else, you need to gather all your cryptocurrency transaction data from all the exchanges, wallets and platforms you’ve ever interacted with. This data will likely come in the form of a CSV file and should include information such as:

• Date & time of the transaction
• Quantity of cryptocurrency involved
• Price of the cryptocurrency at the time of the transaction
• Any fees or commissions

2. Review and categorize your transactions:

Once you’ve collected your entire transaction history, you’ll need to review and categorize each transaction appropriately.

Based on the tax rules we learnt in Lesson 1 and 2, we can now determine whether a transaction is subject to capital gains, income or not taxable at all.

3. Calculate your gains, losses & income:

Based on the categorization of your transactions in step 2, you’ll need to calculate your gains, losses and income for the tax period. Your capital gains and losses will be calculated based on the inventory method you choose. Each tax jurisdiction will have their country-specific inventory methods to handle their unique reporting requirements (you can check here). For example, in the US, most individuals use the FIFO (first-in, first-out) method but in some cases citizens may use the LIFO (last-in, first-out) method.

As seen in earlier lessons, to calculate your capital gains or loss you will have to calculate your cost basis for each transaction (don’t forget to include any fees paid) and subtract this value from your proceeds for that transaction (i.e., sale price).

If you sold the cryptocurrency for more than your cost basis, you have a gain, and if you sold it for less, you have a loss.

Meanwhile, your total income will be calculated by summing up the total proceeds received from your income-bearing crypto activity (e.g., staking rewards, airdrops, etc…).

4. Create tax reports:

Once you’ve calculated your capital gains, losses and income for the financial year period, you’ll need to create tax reports that show these figures. Your tax reports could be specific for your tax authority or if sending to your accountant, should include your:

• Total gains and losses
  • Separated out into short-term and long-term if applicable
• Net gain or loss
• Income
• Fees, deductions or credits

5. File your tax returns:

Lastly, you need to file your tax returns and pay any taxes owed based on the tax reports you’ve created. The tax rates you pay will depend on the crypto tax laws and regulations in your jurisdiction. Certain countries may also have a specific software used for filing tax returns (e.g., TurboTax is commonly used in the US and Canada). You may also send your reports to your accountant and let them file the reports for you. It’s also important that you keep hold of accurate records of your cryptocurrency transactions for future reference.

Option 2: Use specialized crypto tax software

There are several options available for calculating your crypto taxes using specialized tax software, from basic, free options all the way to all-in-one paid services.

CryptoTaxCalculator offers an all-in-one solution, with both free and paid plans for crypto investors and traders across 20+ countries.

CryptoTaxCalculator is a smart software product that helps you easily make sense of your complex crypto transactions, and applies your local tax tax rules so you can be confident your reports are compliant. The platform deciphers the data you provide from all of the exchanges and wallets you have used in order to help you calculate your tax obligations. CryptoTaxCalculator will also automatically categorize transactions with enough data, calculating capital gains, losses and income along the way. CryptoTaxCalculator also provides smart tips that are unique to your transaction set, allowing you to optimize your transactions for tax and potentially save money on your tax bill.

The platform also offers a range of services including an auto-import feature to track transactions across multiple exchanges, comprehensive tax reporting, a cost basis calculation engine, tax-loss harvesting tool and customizable reports that can be easily shared with tax professionals.

In partnership with Gate.io, CryptoTaxCalculator is offering Gate.io users a 20% discount for first-time users. You can head over to https://cryptotaxcalculator.io, sign up for an account and use the code GATE20 at the checkout.

Option 3: File with a tax professional

Your final option is to hire a tax professional (i.e., an accountant or CPA) who specializes in crypto taxes. They can help prepare your tax returns and provide legal tax advice on any of your crypto transactions & queries. However, it’s important to ensure that your chosen CPA is familiar with and comfortable handling the intricacies of crypto accounting, as some may not accept clients with crypto assets (though this is becoming less common).

Using a tax professional can be an expensive option, so be sure you explore all options before going down this route.In general, you should consider seeking professional assistance for your crypto taxes if you are unsure of the tax implications of your transactions and are struggling to find a reputable tax software that services your tax jurisdiction.

Some individuals choose to hire a professional simply because they find the tax filing process unpleasant or are concerned about the possibility of making mistakes that could lead to financial or legal issues. If you share these concerns, you may decide, like many others, that investing in a CPA with expertise in crypto—or specialized crypto tax software—is money well spent and a valuable time-saver.

Takeaways from this course

• Crypto taxes are not like ordinary taxes. They are complex in nature and a lot of grey areas still remain.
• It’s important to understand the crypto tax laws and regulation within your tax jurisdiction in order to calculate your tax liability. You can find a list of country-specific tax guides here.
• NFT & DeFi transactions can get particularly difficult to handle from a tax perspective so it’s crucial that you follow the correct tax guidelines and apply the appropriate category to these transactions when preparing your tax return.
• The process for reporting your crypto taxes involves gathering your transaction history, reviewing & categorizing your transactions, calculating your gains, losses & income, creating your tax reports then filing these reports to a tax professional or directly to the taxation office.
• Calculating your crypto taxes doesn’t have to be painful. You can use reputable tax software such as CryptoTaxCalculator to sort out your tax nightmare, or hire a tax professional.