One of the most important things to do in the crypto space is to keep records of all of your trades and activity. There have been numerous exchange hacks and shutdowns where users have been unable to access their trade history, causing havoc when they try and calculate their taxes a few months down the line.
Therefore, at Recap, we recommend always backing up your exchange transaction CSV files and keeping these backed up in multiple places. It is also important to keep this data safe and encrypted to ensure your own security (security is something we are very keen on here at Recap).
The IRS's official guidance on records needed regarding crypto transactions states the following:
"A45. The Internal Revenue Code and regulations require taxpayers to maintain records that are sufficient to establish the positions taken on tax returns. You should therefore maintain, for example, records documenting receipts, sales, exchanges, or other dispositions of virtual currency and the fair market value of the virtual currency."
Having records of your transactions safely backed up means you can always calculate your tax position, even if services such as exchanges go down or lose that data. It can be an absolute nightmare if this happens and you don't have that data backed up somewhere. This could lead to thousands of dollars in accounting fees to try and establish the cost basis for your crypto transactions that lack important details.
At Recap, we recommend keeping the following data on any crypto transactions:
- the type of cryptocurrency
- date of the transaction
- if they were bought, sold or exchanged
- number of units
- value of the transaction in US dollars at the time of the transaction
- cumulative total of the cryptocurrency held
- bank statements and wallet addresses, if needed for an inquiry or review
Once you have records, you can either import your CSV files into Recap or connect to your favorite exchanges via API to quickly generate a cryptocurrency tax report for the IRS.
Need to sort out your crypto taxes? Use Recap, the privacy focused cryptocurrency accounting software to calculate the taxable gain or loss on your cryptocurrency investments!
Disclaimer: This article is intended as an informative piece. This is not accounting or tax advice. Please speak to a qualified tax professional about your specific circumstances before acting upon any of the information in this article.